President Barack Obama said yesterday that building more efficient vehicles, such as plug-in hybrid electric vehicles, is a critical part of stimulating the economy and helping the auto industry to retool. The president’s plans were supported by the Senate’s compromise economic stimulus bill that includes tax credits for buyers and manufacturers of plug-in hybrid vehicles, as well as $2 billion in direct grants for battery development and manufacturing. It also includes a tax break for new-car buyers and money for the federal government to buy plug-in hybrids and flex-fuel vehicles.

Speaking at a town hall meeting in Elkhart, Ind., Obama said, “If we don’t use this crisis as an opportunity to start retooling, then we will never catch up and be able to compete effectively against Japanese automakers, Korean automakers.”

The Senate held a key procedural vote yesterday evening on the $838-billion stimulus bill, setting up passage today and then a conference committee with the House to determine what the final version should look like.

The Senate bill contained these key provisions regarding plug-in hybrid vehicles:

  • The number of plug-in vehicles eligible for a tax credit of $7,500 to $15,000, for passenger vehicles and trucks respectively, was doubled from 250,000 to 500,000.
  • Conversions of conventional vehicles to plug-in hybrids will receive tax credits of up to 10 percent—with a cap of $4,000 for a $40,000 conversion. Conversions must be “qualified” by appropriate federal agencies.
  • Eligible vehicles will include vehicles with leased batteries, as well as two- and three-wheel vehicles, and some neighborhood electric vehicles.
  • Incentives could start immediately upon signing of the bill into law.
  • The “Cash for Clunkers” provision, which would provide coupons for consumers to sell old gas-guzzling vehicles and buy new fuel-efficient models, was dropped.

If these provision remain in the final version, Obama will move closer to achieving his goal of putting 1 million plug-in hybrid cars on the road by 2015.