The United States is one step closer to an increase in the federal tax credits available to consumers making the switch to electric vehicles. That puts it at odds with decisions recently made by the UK Government.
Consumers in the United States could soon receive up to $12,500 in federal tax credits when they buy a new electric vehicle. That’s on top of the incentives offered by individual states, such as in California where you can benefit from a grant of up to $5,000.
These changes would make electric vehicles much more affordable in the United States, so it begs the question, why is the UK withdrawing financial support for electric vehicle buyers?
US support for electric vehicles explained
Unlike the UK system, the federal Government of the United States isn’t just giving cash grants towards the cost of electric vehicles. Instead, it’s offering to give you a tax credit when you buy an electric vehicle.
That means the amount you’ll receive from the purchase of a brand-new electric vehicle isn’t necessarily the full $12,500. In fact, it could be much lower – that’s because it depends on both the vehicle you buy and how much you earn.
If you only pay $5,000 in income taxes per year, the maximum tax credit you can receive is $5,000 – as long as you buy a car that is eligible to receive a $5,000 tax credit. That does mean you’ll pay zero income tax for that year, however.
So, that begs the question – what cars are eligible under the US system? Well, currently if you had your sights set on anything from General Motors or Tesla, you’ll find that you’re eligible for exactly $0 worth of federal tax credits. That’s because there’s a cap on the number of electric vehicles each company can sell and be eligible for tax credits, which both GM and Tesla have hit.
Thankfully the new system appears to be ditching the tax credit threshold and opening it back up to all manufacturers. However, there is one major caveat – vehicles will only be eligible for the full $12,500 tax credit limit if they are built in the United States by union workers. That means Tesla will still not be eligible for a full tax credit, as it’s one of the only car manufacturers in the US to not use union workers.
For vehicles made in the United States but without union workers, the new EV incentive is expected to rise to $10,000, and if the vehicle is imported it would only be eligible for a $7,500 incentive.
All vehicles would need to cost less than $80,000 to qualify for tax credits under the new system, however, which is a first for the EV incentives in the United States.
Of course, these new proposals have yet to face a full vote in the US House of Representatives or Senate, so could be voted down, but it doesn’t seem likely. The Democrats are big on electric vehicles and they currently control both houses.
How this contrasts with the UK’s approach
The UK claims to be leading the world in combating climate change, with the country championing its commitment to the environment in the run-up to this year’s COP26 conference. However, it shocked the car industry in March when it announced that EV incentives would be cut.
Consumers in the UK can now only get a measly £2,500 towards the cost of electric vehicles, which are still more expensive than their gas-guzzling counterparts. While prices are coming down, EVs aren’t yet commonplace enough on UK roads to start withdrawing support.
Car sales hit an annual low in 2020 due to the Covid-19 pandemic, and it’s easy to see why; you don’t really need a car if you’re staying at home all day with nowhere to go. However, the UK Government clearly saw that rising market share of electric vehicles was reason enough to cut incentives.
In 2020, battery electric vehicles accounted for 6.6% of all car sales, rising from 1.6% in 2019. There’s no doubt that’s an impressive increase, but it’s not like battery electric vehicles are suddenly dominant on UK roads.
That’s why the US has approached its proposed new incentives with a target – the incentives will be phased out when electric vehicles account for 50% of all new car sales in the United States. That’s far more sensible than 6.6%.
Given the disaster that was the Green Homes Grant and the fact that the UK Government pulled the rug up from behind the electric vehicle industry, you have to wonder if the UK is all bluster when it comes to combating climate change.
It seems crazy that the United Kingdom should now be taking lessons on climate action from the United States, the country that voted Trump, but here we are.