Electric Cars Need Subsidies to Be Competitive

CBO analyst: it would take approximately $12,000 in tax credits to achieve parity now

Chevy Volt / AP

Electric plug-in vehicles, such as the Chevrolet Volt, will achieve the affordability of a traditional car in 2020, but only if the government cements a $7,500 tax credit for the vehicles, a Congressional Budget Office (CBO) analyst said on Monday.

CBO analyst Ronald Gecan said the production costs of electric cars are falling as automakers improve the technology required to build the car, though the industry still has years to go before it pulls even with traditional internal combustion engines.

"For the consumer there’s a trade off … you have to pay more at the time of purchase," Gecan said. "By 2020, if the tax credits are left in place, you’d see the gap narrowing … it should shrink enough."

Gecan told the crowd at the Energy Information Administration’s annual conference on Monday that American gasoline prices would have to reach approximately $6 per gallon for a 16-kilowatt hour vehicle, such as the Volt, to reach price parity with gas-powered cars in its class. He added that it would take approximately $12,000 in tax credits for the government to completely offset the steep price of hybrid technologies.

The tax credit was designed to drive demand for alternative fuel vehicles, though motor companies have struggled to move them off the lot. General Motors has suspended production of the Chevy Volt due to lagging demand. The company slashed the price by $5,000 in an effort to spur sales last week.

Ford’s Dominic DiCicco said policymakers and auto executives have failed to inspire confidence in the market by developing the infrastructure to accommodate alternative fuels, such as electric charging stations on the road.

"The challenge remains convincing consumers that these alternative fuels are viable. You must convince them that they can refuel at any time," DiCicco said.

Auto expert Ed Niedermeyer said that the government’s focus on electric vehicles has been detrimental to the development of other alternative fuels. He pointed to natural gas vehicles, which emit less carbon dioxide than traditional gasoline and the fuel for which costs about $1.15 per gallon.

Michael Gallagher, president of natural gas engine producer Westport Innovations, said that natural gas has been able to make its way into the heavy trucking industry, though it still costs approximately $7,000 to $10,000 more upfront compared to traditional vehicles.

"Natural gas makes sense because it is evolutionary and compatible with much existing motor technology," Niedermeyer said. "If government leveled the subsidy playing field for natural gas cars versus electric cars, you'd see natural gas taking off."