CHEAPR

States have been going their own way, whatever the direction of what may be happening Federally. Connecticut has been a consistent supporter of EV adoption and reduced emissions on a number of fronts. And with good reason, as the Department of Energy and Environmental Protection (DEEP) estimates that the transportation sector accounts for about 40% of emissions statewide.

CHEAPR, which stands for Connecticut Hydrogen and Electric Automobile Purchase Rebate, offers rebates to purchasers of plug-in or fuel-cell vehicles. The program began in May 2015. It was announced in November 2017 that another round of funding had been procured to replenish the pool, bringing the total funding since the program’s inception to $5,064,500. According to the CHEAPR website, 2,332 rebates have been issued since the program started, and the amount of funds remaining stands at $1,093,250 These numbers are as of January 11, 2018. (That website link can be used to access all details about CHEAPR.)

Unlike the Federal tax credit, CHEAPR is a rebate so it is of use to people who are not in a position to utilize a tax credit. Some dealers will do the paperwork and just deduct it from the invoice. Unlike the Federal program, there is a $60,000 cap on base MSRP for eligible vehicles. If you are aware of CHEAPR but haven’t checked lately, there were changes made in August 2017 with respect to which vehicles qualify for each level rebate. The maximum rebate was raised to $5,000 (for fuel-cell vehicles, which are expensive). Other rebate levels are $3,000, $2,000, and $500 based on car type and electric range.

There are 3 fuel-cell vehicles on the eligibility list. We’d like to ask our readers, has anyone seen any of them “in the wild” in CT?

Charging Infrastructure

Connecticut has supported charging stations as well as provided credits to municipalities to install charging stations through the Clean Energy Communities Program. In Westport, where town administrations have been supportive of the club’s efforts, there are 19 public charging stations that have been obtained in this way. They are located at the two Metro-North stations, the public library, Staples High School, and town hall. There are two other charging stations downtown that were installed by the Tri-Town Teachers Credit Union and Karl Chevrolet. Of these 21 charging stations, 17 are level 2 and 4 are level 1. In addition, there are other chargers in nearby towns as well as at certain rest stops on the expressways. The expressway chargers are level 3 fast chargers. And, of course, Tesla has built out its own proprietary charging network which spans the country.

CT is a member of the CARB consortium of states that follow the stricter California emissions requirements. CT is also one of the ZEV states, a subset of the CARB states, that mandate the sales of zero-emission vehicles.

Still No Direct Sales Bill

The other, more dubious, news is that CT remains a Tesla-free state (one of only 5 nationally, none in the Northeast), meaning that the company is not permitted to open stores in CT. In 2017, as in 2016, the “Tesla Bill” failed to make it to a vote in the legislature. Let’s keep in mind that the most widely-owned EV marque in CT is Tesla, but customers are forced to either travel out of state or transact online. It has been reported that the state is losing $15 million per year in sales tax revenue plus the revenue from the investment in facilities and employment. The bill is up for consideration again in this year’s “short session.” Contact your state legislators and tell them you support this bill.

So why do we need an “act of Congress,” so to speak, for Tesla to be able to do business here? It’s all about the dealer franchise laws. These laws were created many decades ago and the purpose was to protect dealerships (which are independently owned businesses) from predatory competition from the manufacturers they represent. There was never any Tesla-type scenario envisioned at the time these laws were written. And given the decidedly mixed reception that the dealer networks of the legacy manufacturers have given EVs, along with the fact that close to 99% of new car sales are still of the internal combustion variety, it is understandable why Tesla has a business model focused on direct sales.

The proposed compromise that was unsuccessful in CT would have carved out a narrow exception to the franchise laws that would fit Tesla (and nobody else, at least not at present. For a more detailed explanation of the bill, see our earlier blog post discussing it.) But Tesla has had some success in other states in arguing that the franchise laws simply don’t apply. Just this month, according to the Providence Journal, DMV lawyers in Rhode Island concluded that franchise laws only apply to manufacturers with franchisees. Residents of Eastern CT can pay a visit to the Tesla showroom opening in Warwick, RI later this year.

Model 3

Some people have asked us if a Tesla Model 3 is eligible for the rebate since it is not sold in the state. It is. (The only thing to watch out for with respect to the Model 3, where there is currently a lengthy lag from reservation to delivery, is that the funds don’t get applied until there is a VIN number which doesn’t happen until the vehicle is in production. CHEAPR funds have been replenished several times to this point, but the availability is not guaranteed indefinitely.)

For folks interested in supporting Tesla coming to CT, the company has set up a Facebook

page and a website has been set up by a local group of Tesla owners. Also, please sign our online petition by texting “EV CT” to 52886.

Federal Tax Credit

There is a Federal tax credit of up to $7500 for the purchase of a plug-in vehicle. The amount of the credit depends on the size of the battery. This tax credit originated in the Energy Improvement and Extension Act of 2008 (George W. Bush administration), though it was amended in the Recovery and Reinvestment Act (a.k.a. “Obama Stimulus Package) in 2009. 2018 could be “the year of the ceiling.”

There was some suspense regarding whether the credit would survive the 2017 GOP tax bill given an administration that is doubling down on fossil fuels. The House version of the bill eliminated it. The Senate version retained it, and in the end, it survived. (A proposal arising late in the Obama Administration to change the incentive from a credit to a point of sale rebate and raise it to $10,000 was not able to get serious consideration in this Congress.)

Though the survival of the tax credit may sound counter-intuitive given the current political climate, there is evidence that even though EVs are relatively new, they have established a presence economically. Fortune reports that 50 companies, including major auto manufacturers and Uber, sent a letter urging Congress to retain the credit. The Detroit Free Press reports data compiled by the US Energy Department saying that EV production in this country is responsible for over 215,000 jobs.

It also happens not to be without controversy among vehicle manufacturers, particularly Tesla and General Motors, which will feel its distorting effects first.

Unit Threshold

The credit has a ceiling of 200,000 units applied to a given manufacturer. Once a manufacturer sells unit number 200,000, the credit remains in place for the current and subsequent quarters (to service the pipeline). It is then halved (up to $3750) for the next 6 months, halved again (up to $1875) for another 6 months, and then it goes away entirely for that manufacturer. In other words, the players who jumped first into the deep water will become price-disadvantaged relative to the laggards.

Tesla and General Motors have sold 161,771 and 168,183 respectively through 2017. Both are certain to crack the 200,000 level during 2018 and lose the credit at some point in 2019. Tesla will probably get there first if it succeeds in ramping Model 3 deliveries. The YouTube Channel, Teslanomics (a relatively conservative forecaster) expects Tesla to get to this level in the second quarter. GM, at its current run rate of over 5,000 plug-in units per month, will not be that far behind. And if Nissan, another early entrant, has success with its new generation of the Leaf, it too, could reach this point in the relatively near term. Nissan has sold 114,808 Leafs to this point. These companies will face some big pricing decisions and pressure to maximize cost-control in order to stay competitive.

Importance of EVs to Forestall Climate Change

According to a report issued by the Union of Concerned Scientists, “Electric vehicles are central to reducing oil consumption and transportation-related emissions in the United States.” And incentives matter at this stage of the game. In the one instance where there was a real “light switch” test, the State of Georgia, which initially had generous EV incentives in the form of a $5,000 rebate, discontinued it in 2015 and EV sales dropped by 89% in the span of two months. In California, a state that has been among the most aggressive in deploying various incentives, EVs represent 5% of new vehicle sales (as opposed to 1% nationally).

With all of the wrangling over the EV incentives, let’s not forget that the fossil fuel industry continues to benefit from preferential tax treatment in the form of expensing of intangible drilling costs, domestic manufacturing deduction, depletion allowance, acceleratated amortization, and inexpensive Federal leases. This was estimated by the Wall Street Journal to be worth $4.76 billion per year. Also keep in mind that externalities, the effects of burning the stuff, drilling/fracking for it, transporting it, or accidentally spilling it are not taxed. There are Federal and State gas taxes, though the Federal tax hasn’t been raised since 1993. This has kept gasoline prices in the USA lower than most of the world. The average price for a gallon of gasoline domestically is 55% lower than the worldwide average (January 2018).

With respect to the Federal tax credit, what we have may be better than nothing, but we like the Obama-era proposal to turn the tax credit into a rebate. Not everyone is able to benefit from a tax credit. And we would like to see the sales-unit cap removed.

In terms of how long incentives might be needed, according to data from the Union of Concerned Scientists, it is estimated that with continuing improvements and cost reduction in the technology, the cost curve for EVs may cross that of internal combustion vehicles by about 2025.