If you walk into a dealership today, there is a trend – more electric cars are being sold. In the United States, electric vehicles represent almost 9 percent of new car sales; a massive increase from the 2 percent in 2020. A couple years ago, this was unthinkable to most families. Middle class families are currently dropping around $50,000 on cars they were not even thinking about in the past, which is slightly odd. This increase in electric vehicles comes from the help of up to 7,500 dollars in tax credits that every American taxpayer is funding to push more people toward electric.
Should governments be writing checks to help people buy electric cars?
The answer is not straightforward, which both sides of the argument push for.
Researchers recently found out that every dollar the government spends on electric vehicle subsidies generates about 1.87 dollars in genuine benefits to society. That’s significant when factoring cleaner air, lower healthcare, reduced pollution, and way less money going to countries exporting oil. Without these benefits, electric vehicles would significantly drop by around 29 percent showing that these subsidies change people’s thoughts on going electric.
But Here’s the Problem
Recent analysis shows that about three-quarters of people gaining electric vehicle tax credits would have paid for their electric cars. Think about that. Taxpayers spend 32,000 dollars for every electric vehicle that gets sold because of the subsidy. That is an expensive way to change someone’s behavior on a car purchase.
What is confusing is the people who truly benefit from these programs. The typical electric vehicle customer earns more than the average American household. We are asking taxpayers to help pay for luxury car purchases for the wealthy. Someone from the working class is helping fund a luxury vehicle for an upper classman’s Tesla via tax code. This does not feel valid. This pattern is similar to other tax credit controversies with solar panels, mortgage, and education credits where the highest earners get an unreasonable portion of the benefits, even though the broad policy goals.
The global scope makes it even messier. China has spent several years giving money to its electric vehicle industry and currently dominates global production. Europeans recently put tariffs on China’s electric vehicles because of their unfair advantage from government subsidies. China’s take is very different from the US; while America has consumer tax credits, China invests directly in manufacturing, battery technology, and the supply chain. Overall, this makes a complete policy that gives companies in China lower costs to make electric vehicles. At the same time, American businesses including Ford and General Motors lose money on the electric vehicles they sell. They lose money even with the government aid.
If the United States stops giving electric vehicle aid and other nations stay consistent with their aid, American companies will see it as a major disadvantage.
There are various ways to approach this issue; instead of making everyone pay for electric vehicles that not every taxpayer is buying, there could be precise targeted pay. A possible solution would be to implement tax credits on low-income customers or families who exchange their gas vehicle. This could be efficient via means testing — closing eligibility at households earning below 75,000 dollars and expanding credits to used electric vehicles to make it more accessible for working families. More investments would be directed towards issues that benefit everyone rather than luxury cars that primarily benefit higher income families.
Some argue that electric vehicles should be treated similar to solar panels. First, provide support to build up the industry; then, slowly decrease this aid as the price goes down because of added technology. This strategy has worked substantially for solar panels, with prices dropping around 90 percent over the past decade. Government aid and support helped scale the production at the beginning. Electric vehicle prices are on a similar trajectory.
Furthermore, gas vehicles create a huge question over manufacturing jobs. When building electric vehicles, more employment is given to those that were traditionally missed in the auto manufacturing industry. Electric vehicles would not be assembly line jobs; however, they require skills in tech, software, and advanced topics. The Department of Energy says that the transition to electric vehicles could generate around 300,000 new jobs by 20230. These jobs are in battery building, electric engineering, and software engineering. This transition emphasizes a change in skills that require technical training rather than traditional experience. Government aid will always help confirm that those jobs stay in American factories rather than internationally.
Looking ahead into the future – it is not a question whether electric vehicles will be beneficial and prosper, they are already statistically succeeding. Tesla’s stock price and General Motors’ huge investments show that this transition is trusted. The real argument is if taxpayers should pay to catalyze it and how to charge fairly.
The current electric vehicle strategy is working, but costs too much and benefits strictly the upper-class who are buying these luxury cars. A good policy would transition this from individual payments to more beneficial investments and targeted help for lower-income families that want to purchase electric vehicles. This way, globally, climate goals will be met without asking working families to help for upper class car payments.