EV Market Recovery Needs Equity

In April, Guidehouse Insights reported what trends in EVs and automated vehicles it expects to be disrupted by the coronavirus outbreak. Among our conclusions was that the combined effect of economic recession and low oil prices was going to slow the market recovery for EVs more than for the overall automotive market. This conclusion assumed that government support for EVs would follow broader economic market recovery efforts and run into budget limitations. It is too early to tell the accuracy of this assumption, but it is clear it does not apply across all governments. China, France, Germany, and the UK have increased or are planning to significantly increase EV support mechanisms. These actions are encouraging and hopefully can be replicated in the US. However, as encouraging as the international response has been, the unequal distribution of pandemic-related effects across society should be a reminder for policymakers that EV support needs to be rethought with equity in mind.

The Challenge of Equity for the EV Market

Achieving equity has long been a challenge for EV support mechanisms that affect how funds are raised for road upkeep, where charging infrastructure is deployed, and which EVs are eligible for purchase subsidies. A notable example is the long-standing US EV tax credit that provides up to $7,500 to purchasers of new EVs realized at year-end tax return filings. Ultimately, the tax credit amount is capped by what the purchaser of the new EV owes the government—if they only owe $5,000, then they only receive $5,000. Someone with lower income is likely to have less tax burden, hence they are more likely to see reduced government support.

Equality would be ensuring that all purchasers of new EVs receive the same incentive amount regardless of wealth, as is done in the UK and Canada, among others. Equity would be tying the amount of the subsidy to an indicator of the purchaser’s wealth, often income. For example, individuals with below average wealth would see incentives greater than individuals with average wealth, and perhaps individuals with above average wealth might see no rebate at all. California’s clean vehicle rebate program is structured along these lines. 

Positive Effects of Equity on the EV Market

A course correction toward equity may also have positive effects on EV market development, such as increased investment in EV products for low cost economy vehicle classes, which see the highest production volumes. Arguably, the industry is getting there, but progress has been slow. If automakers see increased demand from these segments, prompted by more equitable EV support designs, the EV market may more quickly expand beyond homeowners that charge their EV(s) in their garage. This charging behavior makes investment in publicly accessible infrastructure riskier for would-be developers, and the lack of publicly accessible infrastructure makes it more difficult for individuals without garages (often individuals with lower wealth) to justify purchasing an EV.

It's time to rethink how the government incentivizes EVs, and there are a few policies that can be improved to produce more equal  and more equitable outcomes. It is time for the EV industry and its advocates to get behind reform here—reforming the US EV tax credit would be a great start.