The economic stimulus package provides tax credits for 25-mph-max neighborhood electric vehicles, and plug-in hybrid cars that won’t be on the market for at least two years—but today’s hybrids get nothing.
The $787 billion economic stimulus package signed into law today by President Obama may well be “an investment in the future,” but it contains relatively little to benefit today’s new-car buyers or to provide immediate economic stimulation. The American Recovery and Reinvestment Act of 2009 (pdf) sets the stage for the dawning of plug-in vehicles, but if you’re looking for help in buying a hybrid or conventional car this year, you didn’t get a lot.
Existing tax credits for purchase of hybrid vehicles remain unchanged. Toyota and Honda hybrids no longer qualify, and Ford hybrids will reach the sales cap and begin fading out sometime this spring, though the Nissan Altima Hybrid (only sold in eight states) and various hybrid models from General Motors will qualify for some time yet. The new law does not extend these existing hybrid credits.
The most immediate impact on green cars is the new tax credit for buying low-speed neighborhood electric vehicles (NEVs), electric motorcycles, and three-wheeled vehicles. Buyers of NEVs—small cars that cannot legally travel faster than 25 miles per hour—now qualify for a tax credit of up to $2,500. This provision has been criticized as pork for “golf carts.” There are a handful of other expensive and low-production plug-in cars, such as the Tesla Roadster, that also qualify.
Spurring Auto Sales
The stimulus bill does contain a provision to make buying a car a little cheaper: It allows new-car buyers to deduct the state and local sales tax paid on a new car from their federal taxes, even if they don’t itemize. The provision applies to any vehicle purchased, from a hybrid to a Hummer, before the end of 2009. The total tax reduction based on this provision is worth perhaps a couple hundred dollars. “A positive development, but we don’t think it would have an immediate impact on the market,” said Chris Hanford, vice president at Hyundai’s US operations, in an interview with USA Today.
Almost $1.7 billion was allocated to fund the deduction, but dealer reaction has been lukewarm, since buyers won’t see the money until they file their 2009 tax returns next year. Research firm R.L. Polk estimated that only an additional 94,000 cars will be sold as a result, less than 1 percent of total vehicle sales of roughly 10 million vehicles this year.
One that didn’t make it was a provision to allow the interest on car loans to be deducted, which had been a prime goal of lobbying by the National Automobile Dealers Association. This was expected to be a much greater spur for vehicle sales, since a majority of car buyers take out loans to buy new cars and loan interest often totals several thousand dollars. Polk had estimated that car-loan interest deduction could boost sales by roughly 360,000 vehicles during 2009.
For hybrid buyers who want to do better than, say, the 50 mpg promised by the 2010 Toyota Prius, the stimulus bill grants a tax credit for 10 percent of the cost of a plug-in hybrid conversion. These conversions add a larger battery pack to lengthen the distance the car can run in all-electric mode. The credit maxes out at $4,000 (for a plug-in upgrade that costs $40,000), and the conversion kit must come from an authorized firm like A123/Hymotion—so building and installing your own plug-in parts doesn’t qualify you for the break. Only conversions done before the end of 2011 will qualify for the credit. A standard Prius conversion to a plug-in costs about $10,000—therefore the tax credit will be worth about $1,000.
The bill does offer benefits for car-buyers in future years who want to buy plug-in hybrid or fully electric cars. Provisions from the Senate version of the bill largely survived, with a few changes. The final language expands existing subsidies for (four-wheeled) plug-in vehicles with battery packs holding 4 to 16 kilowatt-hours of energy.
Right now, no such vehicles are offered for sale in the US market. Toyota plans to offer limited numbers of a factory-built Prius plug-in late this year, but for fleet tests only, and the much-touted 2011 Chevrolet Volt is not scheduled to go on sale until late next year. The credits, which cover vehicles purchased January 1, 2010, or thereafter, would apply to such planned vehicles as the Miles Highway Speed electric sedan. The previous credit had been limited to 250,000 vehicles; the new credits can be applied to the first 200,000 vehicles from each manufacturer that offers them. To date, at least six manufacturers plan to offer vehicles over the next four years that will qualify for the credits.
To assist the development of domestic manufacturing for lithium ion cells and battery packs, $2 billion of grants have been allocated. Over the long term, this is critically necessary to avoid US dependence on Asian cell manufacturers, but those plants—none of which exist now—won’t reach volume production for several years yet.