Incentives in population-dense countries paving the future for mass EV usage

By Jeremy J. Zacharias

The future of the global electric vehicle market is not with ultra-luxurious, exclusive, high performance vehicles. The future is with mass-produced, affordable vehicles for the average consumer, especially in densely populated areas. If these countries are able to switch to fully electric transportation, this will have the greatest effect on global emissions and will aid in lowering the global carbon footprint. This will also increase the environmental benefits of mass electric transportation for the world at large. The question remains: Is the auto industry ready to switch to fully electric? After checking out various incentivesoffered by population-dense countries, such as the United States, China, and India, we are seemingly one step closer. 

United States’ Incentives:

In the United States, the federal government offers a one-time federal income tax credit for the purchase of a new EV. For more information on the U.S. federal income tax credit, please visitthe IRS website at www.irs.gov, and consult with your tax professional. 

To qualify for this federal incentive, the vehicle (1) must be made by a manufacturer; (2) must be treated as a motor vehicle for purposes of title II of the Clean Air Act; (3) must have a gross vehicle weight rating of not more than 14,000 lbs; and (4) must be propelled to a significant extent by an electric motor which draws electricity from a battery which has a capacity of not less than 4 kilowatt hours and is capable of being recharged from an external source of electricity.

The federal government provides a tax credit for new battery electric and plug-in hybrid EVs, ranging from $2,500 – $7,500, depending on the capacity of the EV’s battery. All battery electric vehicles are eligible for the full $7,500. This tax credit affects the consumer’s annual tax liability for the year the EV is purchased. However, like any government program, there is a catch: Once a manufacturer’s EV sales exceed 200,000, the available tax credit enters a phase out period that begins with full rebate amounts in that quarter and the following quarter. After this grace period, the tax credit is cut in half for the next two quarters. Then the amount is cut in half again for a final two quarters before it is phased out completely.

Additional tax credits may be available for the purchase of fuel cell electric vehicles, zero emission motorcycles, and EV charging equipment. According to the IRS, maximum credit amounts are $8,000 for fuel cell vehicles, $2,500 for zero emission motorcycles, $1,000 for residential EV charging equipment, and $30,000 for commercial EV charging equipment. For more information, visit https://www.irs.gov/instructions/i8911, and be sure to consult with your tax professional. 

China’s Incentives: 

China is currently the world’s largest automotive market, selling more than 25 million vehicles, including 1.2 million new EVs in 2019. China’s EV incentives are part of a larger national goal to reduce pollution while also creating a foundation of Chinese manufactured, high quality vehicles. According to an April 2020 article published by Reuters, China announced that it would cut new electric vehicle subsidies by 10% in 2020 in order to extend duration of subsidies following a decision by the Chinese government to continue providing incentives to clean transportation buyers. The full Reuters article can be viewed here: https://www.reuters.com/article/us-china-autos-electric-subsidies/china-to-cut-new-energy-vehicle-subsidies-by-10-this-year-idUSKCN225177

According to the Reuters article, China has set a goal for all new EVs in its country, including plug-in hybrids and hydrogen fuelcell vehicles, to account for one-fifth of Chinese auto sales by 2025, compared with the current 5% figure. China also seeks to cut pollution by incentivizing the purchase of vehicles aimed at the mass EV consumers. To effectuate this, the Chinese government will extend subsidies for buying new EVs to 2022, and tax exemptions on purchases for two years. However, the subsidies will apply only to passenger cars costing less than 300,000 yuan ($42,376). Due to this figure, this is likely to exclude premium electric vehicles such as those built by BMW, among others. Tesla’s Model 3, which has taken the Chinese market by storm, is currently priced at 323,800 yuan beforeapplicable government subsidies, meaning that Tesla, in order to qualify for these subsidy extensions, will have to reduce itsprice.

In order to extend this subsidy program, China’s government will aim to cut subsidies by 20% in 2021 and 30% in 2022. Additionally, the Chinese government will also support the sale of cars with swappable batteries, a technology that has been pursued by Chinese electric vehicle makers Nio and BAIC BluePark. These swappable batteries are aimed to extend the longevity of EV usage, since battery degradation is a main concern for long term EV ownership.

Also, when vehicles are bought for government use, the purchase of electric vehicles will be prioritized, adding to the Chinese government’s commitment to clean transportation.

India’s Incentives:

India’s current struggle with air pollution and increasing population density has prompted its government to get serious about its EV infrastructure and reversing its carbon footprint. The Indian government currently offers various incentives to go electric, including its Faster Adoption and Manufacturing of Hybrid and EV (“FAME”) subsidy, which provides a price per kWh of energy storage, depending on the size of the vehicle’s battery. 

The original FAME subsidy was launched in India under the National Mission on Electric Mobility. The FAME scheme aimed to encourage progressive induction of reliable, affordable and efficient electric and hybrid vehicles (xEV). The First Phase of the scheme was initially approved by the Indian government for a period of 2 years, which commenced Apri1 1, 2015. The original FAME subsidy amount had been determined for each category of vehicle including Mild Hybrid, Strong Hybrid, Plug-in Hybrid and Pure Electric technologies and varying battery specification. It was implemented and monitored by the National Automotive Board under the Department of Heavy Industry.

According to the Indian Department of Heavy Industry, the Indian Government approved Phase II of the FAME scheme with an outlay of Rs. 10,000 Crore for a period of 3 years, beginning April 1, 2019 (known as the FAME II subsidy). According to the Department of Heavy Industry’s website, “[o]ut of total budgetary support, about 86 percent of fund has been allocated for Demand Incentive so as to create demand for xEVs in the country. This phase aims to generate demand by way of supporting 7000 e-Buses, 5 lakh e-3 Wheelers, 55,000 e-4 Wheeler Passenger Cars (including Strong Hybrid) and 10 lakh e-2 Wheelers.” However, depending upon the different categories of EVs, these numbers may vary. Additionally, the Department of Heavy Industries explains which type of vehicle would qualify for the FAME II subsidy. Specifically, “[o]nly advanced battery and registered vehicles will be incentivized under the scheme. With greater emphasis on providing affordable & environment friendly public transportation options for the masses, scheme will be applicable mainly to vehicles used for public transport or those registered for commercial purposes in e-3W, e-4W and e-bus segments. However, privately owned registered e-2Ws are also covered under the scheme as a mass segment.” For more information on the FAME II subsidy implementation, please visit: https://fame2.heavyindustry.gov.in/content/english/1_1_AboutUs.aspx. 

FAME II, according to the official Department of Heavy Industry proposal, was implemented for faster adoption of electric mobility and development of India’s manufacturing eco-system. The FAME II program was developed with the following goals in mind: (1) consumer demand incentives; (2) establishment of the electric charging station network; and (3) focusing on information, education and communication activities. 

Final Thoughts:

Viewing electric vehicle incentive programs offers an interesting case study for the global EV market and the investments made to further the future of electric vehicle use. If average consumersin population-dense countries are incentivized to switch to fully electric transportation, there will be a significant reduction of the global carbon footprint. Is the global auto market ready? If the forecast and incentives offered by the various world governments are indicative, then the answer is yes.