Will electric cars lose their spark?

ATLANTA, Ga. -- Metro Atlanta was ranked No. 1 nationwidefor sales of electric vehicles last summer. That is quite an achievement for a city far removed from the liberal eco-friendly belts of the Northeast and West Coast.

A combination of demographics, commuting patterns and government largess has accelerated Atlanta's ascendancy to EV Hub. Now, one of those propellants is at risk, as is the city's title of EV champion.

A generous — and forward-thinking— tax credit passed in 1998 to encourage adoption of alternative fuel vehicle technologies doles out a hefty $5,000 credit for new EVs purchased or leased.

That credit is now coming under fire from opponents who argue the government handout has outlived its intent of making electric vehicles mainstream. The nearly 20-year-old tax credit is not relevant to current market conditions, argued Rep. Chuck Martin, R-Alpharetta.

The former Alpharetta mayor backed unsuccessful legislation to ax the credit last year. Martin, this year, plans to introduce similar legislation.The credit was put in place to prime the demand pump, Martin said.

"Since we're (a top) market for EV sales in the United States, I could argue the credit has accomplished its task (of stoking demand)."

Georgia can't afford to subsidize auto manufacturers indefinitely, Martin said, referring to the credit as "borderline gratuitous." In 2015, the credit will cost Georgia about $50 million based on the number of cars purchased last year, Martin noted.

Martin points to the fact that the Georgia credit applies even to leases, and can be taken every time a new EV is bought or leased. "We're giving a $5,000 credit for a lease that costs $4,800 for two years," he said, referring to the Leaf, Nissan's popular electric car. "You can then rinse and repeat, if you will."

In a move that suggests pragmatism and acknowledgment, the state's EV boosters are working on a proposal that addresses Martin's dual concerns that the credit subsidizes automakers indefinitely, and that limiting it to only battery-powered electric vehicles is too narrow.

The idea behind the credit is to support new technologies and markets as they gain mainstream adoption, said Anne Blair, director with the Southern Alliance for Clean Energy.

"But to leave the credit in place indefinitely, I don't think is practical and leaves a lot of concern from legislators of how long are we going to be paying for this, and how do we plan for it," Blair said. While the details are being hammered out, the proposal would reduce the state credit from $5,000 to $3,000 beginning July 1, after which it would drop to $1,500 on Jan. 1, 2018, before sunsetting Dec. 31, 2019.

The credit would also be expanded, making it available not just for electric- only vehicles, but also plug-in hybrids, including the Toyota Prius PHEV, Chevrolet Volt and Ford Fusion PHEV, which include a gasoline engine and electric batteries.

"We've tried to address every one of the issues that came up in the last session with revised language that causes a soft landing of the tax credit over time," said Don Francis, executive director of Clean Cities-Georgia. "We have included provisions that lower the credit, sunset the credit, and make it more inclusive by making plug-in hybrids applicable to the credit."

Martin referred to the proposal, which he has not yet reviewed, as a step in the right direction, but one that does not go far enough. "At first blush, it doesn't seem to reduce the credit and/or sunset it fast enough, based on what I feel are current market conditions," Martin said.

A perfect storm

The number of registered electric vehicles on Georgia roads had doubled to nearly 7,500 by October, from the year prior. As of June, 1 in about 60 (1.6 percent) new vehicle sales in Georgia were all-electric vehicles. In 2013, 3,159 taxpayers filed for the credit, claiming nearly $14 million.

"Without doubt, Atlanta is our fastest-growing and largest market," said Jeff Vandeford, managing partner with Metro Plug-In, which installs EV chargers in commercial and residential buildings in the Southeast. The number of commercial Level 2 EV chargers installed in metro Atlanta is up 75 percent in the past year, Vandeford said.

Georgia's EV tax credit has been one of several factors driving strong Leaf sales in Georgia. The credit helps in reducing the total cost of ownership and makes the vehicle more price competitive with an internal combustion engine car, Tracy Woodard, director of government affairs for Nissan North America, told Atlanta Business Chronicle in November.

The credit has been an important factor in getting people to adopt new technology affordably and without having to commit to the platform if it doesn't prove effective, Southern Alliance's Blair said. "But, what we are seeing is that it is effective," she said. "People are fully embracing the technology and it is spurring a shift in behavior from many who may have not been early adopters without an incentive."

Beyond a tax break, several factors have driven EV adoption in the state. "It's a perfect storm of timing and technology development," Blair said.

Atlanta — famous for its sprawl — is a "car city" with more than 1 million commuters. The typical commute is about 40 miles — within driving range of even the most anemic electric vehicle. A temperate climate makes EVs practical — high and low temperatures wreak havoc on drivingrange.

Georgia's relatively inexpensive electricity — 11 cents/khw versus the national average of 13 cents/kwh — keeps EV operating costs low. And, Atlanta's burgeoning population of eco-conscious and early tech-adopting millennials ensures a robust market forelectric vehicles.

The tax credit's proponents argue electric vehicles are not only good for the environment, but also for local economies. Atlanta hasn't met Environmental Protection Agency air quality standards for ground-level ozone since they were developed in 1990, Francis said. Plugin electric vehicles (PEVs) significantly reduce emissions related to daily transportation needs and provide about a 50 percent reduction in greenhouse gases.

For every 1 percent of petroleumfueled miles not driven by EV's in Georgia, about $100 million remain in the state each year, Francis noted. Even at today's low price of gasoline, the average EV driver saves about $1,000 in gasoline costs annually. Part of that saving is spent in the community on goods and services.

Using electricity as a transportation fuel, as opposed to gasoline or diesel, also has a bigger financial benefit to the local economy.

"The fuel electric vehicles use — electricity— is produced by a Georgia utility that employs people and pays taxes in Georgia," Francis said. "When you buy gasoline, that money flows to Texas, Louisiana, or out of the country." Removing the tax credit, or even reducing it, will no doubt slow EV sales as the cost of unsubsidized electric vehicles will climb. Yet, the impact might be short-lived as automakers lower prices to keep cars moving off dealer lots.

"If some of the state tax credit went away, make no mistake, Nissan would discount the Leaf to keep them selling," Martin said. "It's economics."

Nissan's Woodard made the case for continued government support, noting EV sales have not yet reached critical mass and account for a fraction of overall automobile sales. "We don't expect incentives to last forever," Woodard noted in November. "But, we do need to get sales to a sustainable level before the incentives completely go away."

Evolving battery technology and economies of scale are also likely to exert downward pressure on EV prices. Battery prices are expected to drop by more than half to $100 per kilowatt hour due to engineering improvements and economies of scale, web magazine Quartz noted, citing a research note fromDeutsche Bank analyst Rod Lache.

Combustion engines, meanwhile, are likely to get more pricey. U.S. gasoline efficiency standards, which require that light vehicle fleets average 54.5 miles a gallon by 2025, will add up to $2,600 to the cost of a gas-powered vehicle. That would raise the total cost of a typical drive train to up to $7,600 per vehicle in the United States, Lache noted.

Consider this: Tesla Motors expects its all-electric Model III sedan, scheduled for launch before the end of 2017, to cost about $35,000. That's less than what Francis paid for his 2015 Leaf, which has far less driving range.

As Georgia lawmakers convene for the 2015 session, supporters of the tax credit, and its critics, agree on one thing: its days are numbered.

"I'm glad we are having this conversation," Martin said. "I would like to finish it and get a piece of legislation and a policy that we can approve, that brings to consensus this year on rightsizing the credit to the current economic situation."


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