Tax Credits Shift from Hybrids to Plug-in Cars

In a few weeks, Ford will become the third auto company to see federal incentives for its hybrid gas-electric cars completely vanish. Tax credits for Honda hybrids bit the dust at the beginning of last year, and Toyota hybrid credits completely phased out in late 2007.

The clean vehicle incentives instated in 2005 provided tax credits, as much as $3,400, for 60,000 buyers per each automaker before a phase-out period of 16 months. Ford reached the 60,000 hybrid mark before April 1, 2009—so beginning on April 1, 2010, there are zero tax credits for a Ford Fusion Hybrid or Ford Escape Hybrid. Tax credits remain for hybrids and clean diesel vehicles from General Motors, Volkswagen, Mercedes and BMW—but with the exception of the VW Jetta TDI, these are low volume vehicles.

Mission Accomplished or Not?

With hybrids remaining below 3 percent of the new car market, green car analysts and advocates are wondering if the hybrid tax credits have vanished too soon. After a decade in the market, hybrids have become more commonplace and therefore, with tax credits and other incentives, could reach a much larger part of the mainstream market. Incentives could encourage automakers and consumers to put millions of high-mpg low-emission hybrids on the road—the original goal of the tax credits.

Instead, legislators have jumped to the next technology breakthrough: tax credits for plug-in hybrids and electric cars. A combination of local and national credits—up to $7,500 at the federal level, plus a $2,000 credit for charging equipment installation, plus state-based incentives— represent so far the largest bundle of incentives for private purchasers of green electric-drive vehicles.

Yet, these grid-enabled vehicles are not yet available—and when they arrive in later 2010, they will be expensive (even with tax credits) and available in limited supply. This is a good argument for generous tax credits to jumpstart the market. However, the first wave of buyers of plug-in cars will be highly motivated early adopters—a group likely to buy regardless with or without large tax credits. Meanwhile, there won’t be an incentive for some mainstream buyers who need a slight nudge to go hybrid.

The phase-out of incentives for conventional hybrids, combined with the slow rollout of plug-in hybrids and EVs, could mean a multi-year gap in the right incentives for the right markets for greener vehicles.


  • Dave – Phoenix

    The US gov’t is still putting their money in the wrong places.

    Instead of giving money to average consumers to buy hybrids, their giving money for plug-ins, which at todays prices are only affordable to the wealthy.

    These plug-in credits are still basically “tax breaks for the rich”.

    Meanwhile in Japan, there is no cap by manufacturer on hybrid tax credits. As a result, the top two selling cars in the country are hybrids

  • Charles

    How about raise the gas tax and let the best technology win. Do it a 2 cents a month for about 4 years. That way everybody knows what is coming.

  • AP

    Charles, you’re right. Change the market (slowly), and let it decide.

  • wagsbags

    As much as I like hybrids the point of the tax credit was to spur the development of a new technology, not support a market. The government should be punishing (taxing) bad behavior, not picking winners.

    On that note the CAFE standards are increasing 40% by 2020. It’s hard to imagine auto manufacturers getting that much increase, that quickly without a lot of hybrids.

  • Shines

    Well this partly explains why Toyota has determined to shift to plug ins after saying no originally…

  • tapra1

    This is a good argument for generous tax credits to jumpstart the market. However, the first wave of buyers of plug-in cars will be highly motivated early adopters—a group likely to buy regardless with or without large tax credits.Fast Newsletter

  • lamina aklen

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  • lagina manthe

    Incentives could encourage automakers and consumers to put millions of high-mpg low-emission hybrids on the road—the original goal of the tax credits. text spy