President Biden’s $2.3-trillion bill to overhaul the U.S. infrastructure earmarks $174 billion to accelerate the development and penetration of electric vehicles (EVs) amid heightening climate concerns. While the plan aims to bring green vehicles into the mainstream, it has not set forth a deadline to phase out fossil fuel vehicles, as done by many other states and countries including California and the United Kingdom.
Encouragingly, Biden’s $174-billion plan to promote EVs would involve tax incentives and rebates for electric car buyers. Funds will be directed toward revamping of factories, and boosting the domestic supply of materials as well as expanding the EV charging network of the country.
The funds will also be allocated toward replacing 50,000 diesel transit vehicles and electrifying at least 20% of the country’s school bus fleet, under a new program by Environmental Protection Agency. As it is, Biden has already pledged to electrify the federal fleet, which consists of 645,000 vehicles.
While the recent $174-billion plan aimed to usher in an era of EV revolution looks promising at the first glance, will it work out as desired? Let’s delve deeper.
Little Clarity on Tax Incentives and Rebates
To ensure increasing affordability of domestically built green vehicles, Biden intends to establish direct rebates at the point of sale and tax incentives. However, the plan does not have any specifics about the rebates or tax credits as of yet. Under the existing policy, buyers can receive a $7,500 tax credit for EVs. But the current policy caps incentives when automakers cross the 200,000-vehicle sales mark. For instance, Tesla and General Motors have exceeded the cap, so if you are looking to purchase green vehicles from these companies, you would not qualify for the incentive as of now. Both Tesla and General Motors currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
It is unclear now whether the new tax credit will be extended to manufacturers that have already sold 200,000 vehicles. Customers are hoping for expansion of the EV tax credit, which is currently valued at $7,500. Also, lifting of the 200,000-vehicle sales ceiling will be one of the biggest incentives. Further, while the President wants the public to trade their fossil fuel vehicles with zero-emission cars, there are no specifics on how much customers could receive for exchanging their vehicles.
Biden said during his speech: ”We're going to provide tax incentives and point-of-sale rebates to all American families.” While we are encouraged by the proposal, there are no details regarding the size and form of rebates. For the EV revolution to actually kick off, widespread adoption is necessary and direct rebates could play a chief role in this regard. The goal here should be to offer generous rebates for reasonably priced cars to an average American consumer. The rebates subsidizing luxury cars, the owners of which can anyway afford those, would not solve the problem. The focus of the plan should be to provide the incentives to those car buyers that need it most.
Are the Efforts to Jack Up EV Charging Program Enough?
The Biden administration targets 500,000 charging stations by 2030, indicating an improvement from 72,000 at 2019-end. However, it would take much more than government support to boost the EV charging infrastructure. Concerted efforts from the government, private business, automakers and charging companies will be required to build the necessary infrastructure to meet the exponential EV growth by the end of the decade.
Despite aggressive electrification strides undertaken by various auto biggies including General Motors, Ford, Toyota and Volkswagen, EVs still accounted for approximately 2% of new auto sales in the United States in 2020. Bloomberg projects delivery of 4 million EVs in 2030, accounting for 25% of U.S. vehicle sales. While this implies significant growth from the current level of 2%, it still lags behind the 33% and 50% EV penetration prediction for Europe and China, respectively.
AlixPartners forecasts that it would require $300 billion to develop a global charging network, including $50 billion in the United States itself, by 2030-end. While most automakers are splurging billions to improve the performance of vehicles, they are not actively focusing on building and operating their own charging infrastructure.
As it is, most auto giants claim that their upcoming EV models will get charged in less than 10 minutes. Now that’s only possible with higher-level chargers that are expensive to install. Per the U.S. Department of Energy, there are more than 41,000 charging stations in the nation, with less than 5,000 fast chargers. There’s a growing need for additional fast chargers, which are quite pricey. Demand for charging needs to be adequate for businesses of charging companies like ChargePoint and EVgo to be viable.
Importantly, charging availability is often a sticking point in the widespread adoption of EVs as there’s a fear of running out of charge before either reaching the destination or a charging point. Charging infrastructure and green vehicles have long faced the ‘chicken or egg problem’. Some believe EVs would not gain immense popularity until the convenience of charging is in place. Others are of the view that charging infrastructure would not gather momentum until electric cars gain traction.
While Biden’s plan is a bright ray of hope for the EV push, there is not much clarity about certain things as of now. So, it’s a little too soon to perceive it as a tipping point that would lead to surprisingly increasing shift of consumers from internal combustion vehicles to EVs.