Which incentives work for electric cars?

Which incentives work for electric cars?
Electric Vehicle Only

If you have been reading my articles for a while you probably noticed that I’m strongly against Governments subsidizing private transportation. In my opinion Governments should only invest in public transportation. When Governments subsidize private profits, one thing is for sure, the only incentive that exists is to keep the price of the product or service high. A cheap product doesn’t justify the existence of a subsidy…

Now some Germans are finally discovering that the recent 4.000 € incentive to buy electric cars decided by the Government is going straight to automakers pockets, it’s not used to drop the prices as it supposed to do. In Germany the incentive has a particularity of being supported in half by the State (2.000 €) and the other half by the automaker. Yet this doesn’t make it ok, because the German Government agreed with the automakers on paying half of the subsidy to make electric cars more affordable. Not to increase their profits.

This obvious conclusion is in a study of the Center for Automotive Research (CAR) at the University of Duisburg-Essen. The monetary incentive given by Governments to buy electric cars is only increasing automakers profit, not electric cars adoption.

It’s basics Economics. For example that’s why Public Health Care in Europe provide better services for less costs than Medicare in the USA, where the Government pays private corporations to provide health care services. The same happens in Education. Private Universities in the USA take advantage of public subsidies to charge ridiculous high amounts of money for a college degree.

This kind of subsidy also reinforces the myth that electric cars are intrinsically expensive, so they need to be subsidized. The truth is when automakers decide to mass produce electric cars in the same quantities of gas cars, electric cars will be cheaper to make. They have a lot less moving parts, this not only saves time and money in suppliers, but also in working hours, electricity and complex machines in the production lines. A production line that only builds electric cars is a lot simpler, efficient and faster.

But saying this kind of incentive actually hurts electric car’s adoption by keeping the prices artificially high doesn’t solve the problem. What kind of public policies work?

We need to acknowledge why automakers love gas cars and prefer them over electric cars.

Planned obsolescence. Gas cars by being way more complex they are more prone to failure. This increases automakers profits in maintenance and also keeps the driver more receptive to change his car for a new one to avoid problems.

But automakers sell cars, even if they prefer gas cars it’s better to sell electric cars than sell nothing. This is why the real incentive to get automakers serious about electric cars is making the task of selling polluting cars a lot more difficult.

Some measures that make selling polluting cars more difficult:

  • Prohibit the circulation of polluting cars in cities
  • Parking more expensive for polluting cars
  • Toll roads more expensive for polluting cars
  • Increase the price of fossil fuels
  • Increase the VAT for polluting cars
  • Use realistic methods to measure emissions and tax them accordingly
  • Stop subsidizing wars for oil and show the public the real cost of these wars
  • Increase taxes for the oil industry

 

Making gas cars harder to sell it’s what countries like Norway are successfully doing. In Norway the Renault Zoe (battery included) is cheaper than the Renault Clio…

To accept these measures, people must be informed that alternatives to gas cars already exist. Electric cars are not only good alternatives, actually they are better.

The electric car revolution to work, must be accompanied by renewable energy revolution. What car can be better than one powered by renewable energy? Specially if a company can produce the electricity in your own country or even better, you do it at home.

 

When automakers feel that selling polluting cars is getting more and more difficult they’ll finally embrace electric cars.

Not every politician has bad intentions regarding public policies. Sometimes they are just badly informed or advised. Even in some electric car’s supporter communities public monetary subsidies are seen as needed and these communities sometimes influence public policies in the bad way with their advice.

Fortunately some media in Germany is reporting this fact. I don’t know about other countries, but if I was a tax payer in France I would be scandalized with the situation there. It can go up to 10.000 € in public money straight to automakers pockets for each electric car sold and the prices remain ridiculously high.

What do you think? Am I wrong? What are the public policies you find more efficient to make the transition from gas to electric cars?

 

 

More info:

http://www.welt.de/print/welt_kompakt/print_wirtschaft/article157546745/Hersteller-stecken-Praemie-fuer-E-Autos-in-die-eigene-Tasche.html

http://www.wiwo.de/unternehmen/auto/elektroautos-e-kaufpraemie-kommt-nicht-bei-kunden-an/13944858.html

http://www.goingelectric.de/2016/08/01/news/umweltbonus-macht-elektroautos-nicht-billiger/

Pedro Lima
5 Comments
Inline Feedbacks
View all comments
Yoda
3 years ago

In the US first and foremost the gas tax needs raised but that is considered taboo and no one in the gov has the courage to even attempt…
Secondly over here and many other places the govs need to stop subsudising oil which receives subsudies that dwarf EV and renewable energy subsidies…
Outlaw the sale of new light duty diesel vehicles…
Simply put a mandate that X % of car sales have to be electric in 2018 and then raise X every year which would also be taboo in the US…

All of this would speed up the transation but once the model 3 rolls out in mass the owners friends and co workers can get a ride in one…
That will be a huge game changer for the switch…
Mercedes announcement about a new sub brand and new models signals that they and other big auto have seen the writing on the wall…

3 years ago
Reply to  Yoda

For sure that Tesla Model 3 will affect luxury brands like BMW, Mercedes or Audi. Those will have to electrify their fleet or enter bankruptcy. There is no alternative for them and they know it.

But the Tesla Model 3 is still very expensive for most buyers. We need alternatives for less expensive gas cars that are sold new for 10.000 €.

Polluting products like gas cars should pay at least 50 % VAT. Automakers like every big corporation hate paying taxes, they would prefer to start selling EVs.

Terawatt
3 years ago

I have to say I think you are doubly wrong.

First on the actual effect of subsidies. I live in Norway, which as you surely are aware of is farthest along the EV adoption curve. And that has everything to do with incentives. Cars have “always” been incredibly expensive in Norway with a one-time fee to be paid when a car is imported that often exceeds the price paid to the factory for the vehicle. By excepting EVs from this one-time fee as well as VAT, they are cheaper not just to run but also to buy than ICE vehicles over here. In addition (as again you probably know) there are numerous other advantages for EV drivers here. Free parking, access to use bus lanes, and free use of toll roads are the most important ones, but there is even free ferries and a 75% reduction in road tax.

All of which explains why EV share started to pick up as soon as the triplets arrived and continued to grow as the LEAF and later Tesla, BMW, VW, KIA, Renault and others joined in. There is no way EVs would have gone mainstream here without the massive advantages. Some proof of this has unfortunately already come when our new right-wing government (whose voters are often of the odd anti-environment kind) decided it would be a good idea to hand out some subsidies also to PHEV buyers. This policy has promptly reduced BEV market share considerably – although the BEV/PHEV combined share has continued to grow and now stands at about 25%.

I also don’t understand why auto makers making a profit on selling EVs is such a problem. Society saves money when people drive EVs, mainly because they use much less (and cheaper) energy over their life, but also because reduced pollution reduces their impact on people’s health and indirectly productivity. So our goal should be to sell more EVs. One way to accomplish that is to make it more profitable for car companies to sell EVs. It matters very little if they sell more EVs because they advertise them more aggressively or train their salespeople on selling them or by reducing the sticker price. This is irrelevant from the POV of the government (or the tax payers), whose interest is simply to promote EVs.

Lastly, I think you are also wrong from a moral point of view. It’s not like fossil fuels and ICE goes unsubsidized. Most of this is in the form of “externalized costs”, but so what? Those who buy and use fossil fuels seldom pay the full cost. The cost that is paid by us all and not by the user is in reality a subsidy. To call it anything else is a distinction without a difference.

Terawatt
3 years ago
Reply to  Terawatt

As an aside, the exceptional advantages for EVs were introduced not because of our progressive government taking the environmental aspects seriously, as one would like to imagine. Rather, they were invented when our politicians thought Think might become a success and establish a Norwegian manufacturer in this gigantic industry that employs a lot of people. It was to help Think get going that the rules were invented, but since such things are illegal under various free-trade agreements we are party to, it was instead reframed as an environmental policy. Luckily it then went on to actually become this since whoever now removes the advantages looks like a foe of the environment – combined with the fact that Norway’s public finances are anything but stressed. With oil going south this has begun to change a bit, but there’s certainly no problems with our state finances in the short to medium term. So even now we got the “blue-blue” coalition government the policy seems likely to remain in place for a long time. Some benefits will however be removed, and the first to go will probably be free parking, use of bus lanes and perhaps also toll roads. The one-time import fee will eventually apply to EVs as well, but there is now broad agreement that this tax shall depend heavily on how environmentally friendly a vehicle is. Gas guzzlers will remain prohibitively expensive. Fuel also being heavily taxed provide an additional disincentive that also becomes stronger the more you drive.

In my personal opinion ALL of the taxes relating to vehicles should ideally be tied directly to their USE. For any given total tax take this model would maximize the incentive to bike or take a bus instead of drive whenever you can – or to get an EV (which does not have to be taxed much since we have nearly 100% hydropower and consequently no emissions from EV driving). Doing this is however not entirely without difficulty. If you design a new system so that someone saving $20k on a new car and then repaying those same $20k over ten years in taxes on fuels, that person ends up in the same place but now has stronger incentives to use less fuel. The problem is for poorer people who drive an old banger worth $1500, because that is all they can afford. Such a car would suddenly cost much more to use – even more than the cars the middle-class are buying, because it is old and uses more fuel. Over time I still think this is the direction the system should move in. Make use of every tax dollar to also incentivize so that people are rewarded for choosing to behave in ways that impact others negatively as little as possible.

3 years ago
Reply to  Terawatt

Thanks for sharing your thoughts.