The end of tax credits to spell the end of the EV market?

For years, by giving $7,500 tax credits to vehicle buyers, the federal government has subsidized the electric car revolution. But relatively soon the subsidies will be going away, and some think the result will be a disaster for electric vehicle makers.

Auto sales and information site Edmunds put out a paper last month that argues that the end of the subsidies will ‘kill’ the US electric vehicle market. Vehicle manufacturers each get credits for their first 200,000 customers. Tesla has sold almost 100,000 vehicles and is expected to run out of credits next year. It has more than 400,000 orders for its Model 3, so the company is in no immediate danger of running out of buyers.

But there’s obviously a big difference between paying $35,000 for a Model 3 and paying $27,500. And as Tesla tries to get more mass-market buyers, it will be competing with gasoline and hybrid cars that sell for closer to $20,000. Eventually, Bloomberg notes, electric car prices are expected to be lower than gas-powered vehicle prices because batteries are getting cheaper, but not until about 2026.

Edmunds thinks the loss of the tax credit will cause the market to crash, because it looked at what happened after Georgia eliminated a $5,000 tax credit for electric vehicles there. Before the credit, Georgia accounted for 17% of all US electric vehicle sales, but afterwards its share fell to 2%.

While the high-end market is likely to weather any change in the tex credit, the mass market buyer is more likely to care about the incentive, Edmunds noted. If electric vehicle companies want to continue drawing customers they may have to replace those government incentives with major price cuts.

“Without government support, the onus will be on automakers to keep sales afloat — most likely with their own incentive programs and at a detriment to their bottom lines.”

Big Picture: Tesla and other automakers could be in a bind once federal subsidies for electric vehicle buyers run out.