Build Back Better – Part I: Electric Vehicle Incentives

Written by: David Moody

This article is the first in a series of articles examining funding for public infrastructure in the Build Back Better (BBB) Bill – H.R.5376 [Report No. 117-130]. More specifically, we’ll review the safe drinking water projects, energy-efficiency projects, transit services and clean energy projects in low-income communities and today we’ll review the incentives for electric vehicles and zero-emission vehicles.

A symbol of a car charging on a parking lot to indicate parking / charging for electric vehicles.

Electric Vehicle Incentives

As of November 2021, in the United States the average vehicle transaction price (AVTP), vehicle price before any manufacturer incentives, was $46,329. That was for both gas and electric vehicles (EVs). If one was only looking at EVs, the AVTP was $56,437, a delta of $10,108. However, this doesn’t tell the entire story. For illustration purposes we have created three tables below that showcases a Compact, Mid-size and Full-Size Crossover SUV and Luxury Crossover SUV along with a typical EV based on data obtained by Kelly Blue Book.

Here are a few assumptions that were made to generate the tables:

 1.     12,000 miles a year are driven by each vehicle.

2.     EV had a one-time charge of $2,000 to setup a level-2 charger for at home charging. This is included in the total cost of ownership over 5-years. Also, all charging is done at home.

3.     Average utility charges per month for an EV are $30/month in year one.

4.     $3.00/gallon gas in year 1 for non-luxury SUV and $3.20/gallon gas for luxury SUV.

5.     Compact SUVs have an average miles per gallon (mpg) of 35.

6.     Mid-size SUVs have an average mpg of 32.

7.     Full-size SUVs have an average mpg of 30.

8.     Gas and electric utility prices along with yearly maintenance cost increase by 4% a year.

9.     Yearly Maintenance cost is 50% higher for a luxury SUV versus non-luxury.

10.  Yearly Maintenance per mile on a compact SUV is 8.94 cents per mile.

11.  Yearly Maintenance per mile on a compact SUV is 9.94 cents per mile.

12.  Yearly Maintenance per mile on a compact SUV is 10.94 cents per mile.

13.  Assumes a yearly $200 vehicle registration fee for EV in Ohio. All other costs are the same in terms of vehicle registration and thus are not included in five-year cost of ownership.

14.  Cost of insurance is variable dependent on driver history and insurance provider and therefore not included in five-year cost of ownership.

15.  Assumes no hybrid SUVs.

16.  Vehicle financing charges are not included as those will be dependent on the applicant’s credit score and cash available for full or partial payment.

There are four possible credits for EVs:

 1.     $4,000 base EV credit.

2.     An additional $3,500 if the EV battery pack has at least 40-kilowatt-hours of capacity.

3.     An additional $500 if the EV battery is US made.

4.     An additional $4,500 if the EV is made in the US with a union workforce.

Thus, a maximum of $12,500 in tax credits are available if the following conditions are met:

  • Manufactures suggested retail price for the EV is less than $55,000 for an electric sedan.

  • Manufactures suggested retail price for the EV is less than $80,000 for an electric SUV or Truck.

  • Single tax filers with an annual gross income less than $250,000.

  • Joint tax filers with an annual gross income less than $500,000.

As you can see this is all rather complicated, but a $7,500 tax credit would make EVs more affordable than all those shown in the tables except for the compact non-luxury SUV. The maximum potential tax credit of $12,500 would make it cheaper than the AVTP for all vehicle types but it would still be more expensive than a non-luxury compact SUV.

In summary, the BBB Bill has the potential to make EVs more affordable for most American Families however, wider adoption is required to make them more cost effective. In the next article we will review more details on the cost of electric infrastructure in and outside of the home and how the BBB Bill has the potential to address potential issues/challenges in this area as well.

Stay Tuned!