Tesla Inc. and General Motors lead the U.S. auto industry in sales of plug-in vehicles.
In a traditional vehicle segment, that would be cause for celebration. But in an emerging market for plug-ins, it has meant investing billions of dollars in vehicles that aren't yet profitable while also being first in line to lose sizable tax credits for their customers from Uncle Sam.
Tesla, perhaps as early as July, is expected to be the first automaker to hit a 200,000-unit sales mark that triggers a phaseout of the federal tax credit currently worth up to $7,500 toward the lease or purchase of a new plug-in hybrid or electric vehicle.
GM is expected to follow Tesla by early 2019. Nissan Motor Co. and Ford Motor Co. are the next closest to 200,000 and are still forecast to be years away from hitting the trigger. Barring an extension to the credits from Congress, the plug-in market is about to enter a period in which some brands are suddenly hindered by a considerable price disadvantage, and buyers could be surprised to receive less of a credit than they had been counting on.
The end of the credits was expected to occur years ago for large automakers such as GM. But adoption of the vehicles has not occurred as quickly as most expected when the program was created a decade ago.
Plug-in hybrids and electric vehicles aren't expected to reach 10% of U.S. auto sales until 2025.
2017
202,151
1.2%
2018
284,795
1.7%
2019
398,898
2.4%
2020
599,950
3.6%
2021
770,649
4.7%
2022
1,125,115
6.9%
2023
1,425,687
8.6%
2024
1,613,246
9.7%
2025
1,728,996
10.3%
Source: IHS Markit
Plug-ins represented 1.2 percent of U.S. sales in 2017, according to IHS Markit, which doesn't forecast them to surpass 5 percent of the domestic market until 2022. IHS predicts that by 2025 an influx of new models — the number of choices is expected to go from 49 last year to 258 in 2025 — will increase sales of plug-ins, including fuel cells. But even at 10.3 percent in 2025 they would still represent just a sliver of the overall market.
The alternative-fuel tax credit program started under the George W. Bush administration and was expanded under President Barack Obama. It was a point of contention for the Trump administration and Republican-led Congress last year, as they debated sweeping tax reform legislation that almost terminated the program.
Supporters, including many automakers, have touted the cash as a needed subsidy to help accelerate the development of next-generation electrified vehicles to reduce the country's dependency on fossil fuel and foreign oil.
Opponents of the credits have criticized the program for disrupting the free market and using tax dollars to back unwanted technology. Some say the government should not be subsidizing wealthy customers who would purchase $75,000-plus Teslas anyway.
And now, the program is about to effectively penalize companies that spent billions on research and development, built up supply chains and stimulated public interest, which rivals can now take advantage of as the plug-in market gets more competitive.
"The groundbreakers, the people who forged ahead and got these products out there first, could be at a significant disadvantage now," said Rebecca Lindland, executive analyst at Kelly Blue Book. "I don't think it's fair to reward a company that hasn't been as innovative with an incentive that begins when someone else's ends.
"We need to not penalize the companies that were innovative and early to market."
Tesla quiet, GM lobbying
