President Joe Biden’s infrastructure proposal promises to give consumers point-of-sale rebates to buy American-made electric vehicles in order to help battery-powered cars become affordable for everybody.
The idea is modeled after a $392 billion plan released last year by Senate Majority Leader Chuck Schumer to provide drivers rebates to swap old gas guzzlers with zero-emission vehicles, in what would be a major expansion of the Obama administration’s $3 billion “Cash for Clunkers” program.
BIDEN AND DEMOCRATS LOOK TO ‘CASH FOR CLUNKERS’-STYLE PROGRAM TO BOOST ELECTRIC VEHICLES
Obama administration’s 2009 Cash for Clunkers, which experienced mixed reviews, was designed to boost consumer spending to help the economy recover from the Great Recession while offering credits to buyers who traded in vehicles for new ones with better fuel efficiency, not necessarily zero-emission ones. The Schumer plan, by contrast, would specifically prioritize deploying cars that don’t emit any carbon at all, such as electric vehicles, plug-in hybrids, and hydrogen fuel-cell.
Biden’s proposal does not name the Schumer concept, but the top Senate Democrat is widely expected to include his electric vehicles plan in whatever infrastructure package he tries to pass. Schumer has plugged his “Clean Cars for America” plan in several floor speeches and media appearances, touting that it would remove more than 63 million gas vehicles off the road over a decade, replacing 25% of the gas-powered fleet.
But auto market analysts and economists say a trade-in rebate program on its own is unlikely to spur sluggish demand for electric vehicles, which remain stuck at 2% of U.S. total sales, without complementary policies being enacted first or in close proximity. These include policies to mandate stricter fuel-efficiency standards, along with investing more in charging infrastructure to reduce range anxiety, spending on technology to reduce the cost of batteries, and incentivizing factories to build electric vehicles.
“Before you just go gonzo on consumer incentives for electric vehicles, you want to make sure we have the ability to make them here and the pieces are in place to drive consumer choice,” said Kristin Dziczek, senior vice president of research at the Center for Automotive Research. “You have to sequence it correctly.”
Biden and Schumer propose comprehensive approach
Both Biden’s infrastructure proposal and the Schumer plan seem to appreciate the scope of the challenge.
Biden is promising to spend $174 billion to “win the EV market” from China, the world’s leader in electric vehicle sales, by providing rebates (on top of expanded tax credits) for consumers, grants to states and localities to build 500,000 charging stations, and incentives for manufacturers to retool factories to make batteries and EVs.
“It looks like they are trying to provide stronger incentives for consumers to buy EVs from a lot of different vantage points,” said Joshua Linn, an economics professor at the University of Maryland and senior fellow at Resources for the Future. “Right now, many consumers are pretty far away and not considering EVs, so they’ll need a lot of help.”
The Biden administration is also planning to propose by the end of July new stricter limits on the emission of greenhouse gases from automobiles, jump-starting what’s expected to be a time-intensive process. Tighter rules could force automakers to produce more electric vehicles, on top of the more than 200 models of electric or hybrid cars that automakers have already announced plans to offer in the United States by 2024.
“Those standards probably wouldn’t be giving strong support to EVs for a number of years,” Linn said.
A problem with the Cash for Clunkers program was that it was implemented before the Obama administration imposed stricter fuel efficiency standards, meaning there were not enough low-emitting vehicles in circulation to replace dirtier ones.
What a rebate program seeks to accomplish
Proponents of the trade-in rebate concept say its purpose is to lower the sticker price of electric vehicles, which remain higher than gas-powered cars despite the lifetime cost of owning an EV being lower.
A rebate designed to encourage the purchase of electric vehicles could bring new buyers off the sidelines. Wealthy people who frequently buy new cars have been the primary consumers of electric vehicles.
“What you would see is new buyers coming out rather than people who would have bought a new car anyway,” said Ryan Gallentine, director of transportation at Advanced Energy Economy.
Dziczek said the average household income of a new vehicle customer, electric vehicle or otherwise, is about $80,000.
“Lower-income people don’t buy new cars, electric vehicles or not,” she said.
Schumer’s plan would give consumers looking to swap their gas-powered car a point of sale rebate starting at $3,000, “ramping” up the subsidy amount based on the zero-emission range of the vehicle.
The gas-powered car being traded in would have to be at least 8 years old.
In order to attract lower-income consumers, the program would offer households with incomes less than or equal to 200% of the federal poverty line an additional $2,000 rebate for new vehicles or a 20% rebate for used ones.
“A well-designed rebate program needs to consider who is missing from the market and what we can do to make sure vehicles are getting in the hands of those people,” said Dave Cooke, senior vehicles analyst at Union of Concerned Scientists.
Cost isn’t everything
But Dziczek said getting moderate- and lower-income people into electric cars is going to take time and is dependent on not just the sticker price but also convenience.
She cited the example of Norway, which has dangled huge subsidies that have helped make EVs cheaper than gas-powered ones. Norway leads the world in EV penetration on a percentage basis, at 54%, but Dziczek said it could be higher if there was better coverage of charging stations.
Biden is promising a big federal government role in ensuring charging access, but a build-out of a national network is challenging given the rural character of many parts of the country. Another problem: Lower-income people who often live in multiunit dwellings might not be able to charge their car at home.
Also important, Dziczek said, is that consumers have access to a broad supply of vehicles, not just smaller models that were early entrants to the market, such as the Nissan Leaf, Chevy Bolt, and Tesla’s Model 3. Automakers are promising an “explosion” of electric vehicles across every segment over the next two years, Dziczek noted, including pickups, vans, and SUVs, the most popular type of car in America.
“Improving consumer choice is absolutely going to be important,” Cooke said. “SUVs are a huge share of the market, and there aren’t a ton of them out there fully electric.”
Possible ‘unintended consequences’
A rebate program enacted without supporting policies could potentially lead to “inequitable outcomes,” Dziczek said, worsening a problem it seeks to address.
Under the Cash for Clunkers program, dealers were directed to scrap the traded-in vehicle to ensure it could not be resold (the Schumer plan, likewise, says the dealer would “properly dispose of” the vehicle, suggesting it could not be resold).
When these older gasoline vehicles are taken out of circulation, that could constrain supply and raise prices in the used car market, which is most frequented by lower-income people.
“That increased price falls on lower-income people who buy used cars,” Dziczek said.
Linn also worries that policies designed to make new gasoline cars more expensive than electric vehicles could encourage people to hang on longer to their older, less fuel-efficient vehicles.
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To offset that possibility, Linn said policymakers should provide subsidies for people to take public transportation, reducing the need to keep an older car.
“You want to provide the right incentives to reduce the driving of older vehicles and encourage people to use cleaner forms of transport,” he said.
