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Should California spend $3 billion to help people buy electric cars?

Should California spend $3 billion to help people buy electric cars? thumbnail

Over seven years, the state of California has spent $449 million on consumer rebates to boost sales of zero-emission vehicles.

So far, the subsidies haven’t moved the needle much. In 2016, of the just over 2 million cars sold in the state, only 75,000 were pure-electric and plug-in hybrid cars. To date, out of 26 million cars and light trucks registered in California, just 315,000 are electric or plug-in hybrids.

The California Legislature is pushing forward a bill that would double down on the rebate program. Sextuple down, in fact.

If $449 million can’t do it, the thinking goes, maybe $3 billion will.

That’s the essence of the plan that could lift state rebates from $2,500 to $10,000 or more for a compact electric car, making, for example, a Chevrolet Bolt EV electric car cost the same as a gasoline-driven Honda Civic.

Already approved by several Senate and Assembly committees, the bill will go to Gov. Jerry Brown for his approval or veto if the full Legislature approves it by the end of its current session on Sept. 15.

California aims to reduce greenhouse gas emissions by 2030 to a level 40% below what they were in 1990. “If we want to hit our goals, we’re going to have to do something about transportation,” said Assemblyman Phil Ting (D-San Francisco), sponsor of Assembly Bill 1184.

Without a dramatic boost in subsidies, Ting said, the state risks falling short of Gov. Brown’s goal of 1.5 million zero-emission vehicles on California highways by 2025, and the California Air Resources Board’s goal of 4 million such cars by 2030.

The bill is opposed by Republicans averse to taxpayer subsidies and even the Legislature’s own analysts have called it “duplicative,” “unclear” and “problematic.”

Some Democrats also are casting a wary eye on new state spending, given California’s frequent budget crises.

Outside observers and analysts raise eyebrows at the $3-billion budget line. Supporters say the money will come mainly from the state’s cap-and-trade auction revenue, although they are vague on details. Other legislators, including Senate leader Kevin de León (D-Los Angeles), are putting in their own bids for cap-and-trade revenue that overlap with Ting’s.

“There are a lot of claims on that money,” said Severin Borenstein, an energy markets expert at UC Berkeley’s Haas School of Business. Cap-and-trade revenue is not free money, he noted. “Voters should think of it as government revenue that could be used for anything else.”

Also left vague is the rebate amount to be applied to each vehicle. The bill passes that decision to the air resources board. It directs the board to use state rebate money so the consumer needn’t pay more for an electric compact car than a similar gasoline-powered compact car.

The reason electric cars cost more than traditional cars is because electric car battery packs still cost thousands more than internal combustion engines. Other market forces are working against electric cars, as consumers shift in large numbers toward big gas- and diesel-powered SUVs, pickup trucks and crossover vehicles as fuel prices remain persistently low.

Oscar Gutierrez of Community Chevrolet  in Burbank under the hood of a Bolt electric car.
Oscar Gutierrez of Community Chevrolet in Burbank under the hood of a Bolt electric car. (Brian van der Brug / Los Angeles Times)

Big state rebates on the spot

Ting’s basic argument in favor of the bill is that bigger rebates will lead to bigger sales, especially now that automakers are coming out with electric cars that can travel 200 miles or more on a single charge.

That alleviates “range anxiety,” he said, moving buyers’ attention to the price. He acknowledges that other factors are at play, including a perceived scarcity of public charging stations and lack of enthusiasm at many car dealerships.

Unlike the current program, rebate amounts would start high and then step down to lower amounts as total sales volume increases over the years.

“A lot of this is based on the belief that the price of batteries will come down and the price of vehicles will come down and will reach a crossover point when the price of a battery electric vehicle will be cheaper than an internal combustion engine car,” said Steve Chadima, senior vice president at Advanced Energy Economy, a renewable energy advocacy group.

The bill would also make it faster and easier to get a rebate. Now people purchase a car, apply for a rebate, and wait for a check from the state treasury. The new approach would subtract the rebate amount off the sale price, and the state would send the money to the dealer.

In effect, the plan would operate like regular cash-off dealer incentive programs, except that the state, not the manufacturer, would pick up the tab.

Rebate amounts would be based on the difference in price between an electric compact car and a comparably sized gasoline-powered car, “so that if people really want an electric, price is no longer the issue,” Ting said.

The legislation leaves it up to the Air Resources Board to figure out which cars are comparable, devise a formula and set rebate amounts.

“For argument’s sake, what we have assumed is the price of a long-range, compact EV — in this case we’re using the Chevy Bolt EV as the benchmark — and compare that to an equivalent internal combustion engine car,” Chadima said.

The base price of a Bolt EV is $36,620 while the price of a base Civic is $18,740. Take off $7,500 for the federal government’s EV subsidy and, by Chadima’s estimation, the state would contribute $10,380 to the purchase.

The Tesla factor

The bill would also allow, but not require, the Air Resources Board to make up for the $7,500 federal tax rebate should it disappear under the Trump administration or should a particular manufacturer sell enough cars that the federal subsidy is no longer available.

Federal subsidies wind down once an automaker sells a total of 200,000 electric cars. Tesla Chief Executive Elon Musk says his company will turn out 500,000 vehicles in 2018, now that the Model 3 is under production, which would end federal Tesla subsidies.

That is why some in Sacramento call Ting’s legislation the “Tesla Bill.” Supporters of the bill deny it is tailored to help that company in particular.

The base price for a Model 3 is $35,000. If the state were to match the price of a Honda Civic and also cover an expired federal rebate, the buyer incentive would total $16,260 per Model 3.

The Financial Times recently reported that BCA Research, an independent investment research firm, estimated that, excluding subsidies, the cost of an electric car right now is $16,000 more than an equivalent internal combustion engine car.

Chadima does not dispute that analysis. But “the assumption that the [federal] tax credit will go away or that any manufacturer would have reached a limit is not part of our particular calculations.”

The bill contains no language specific to Tesla or any other manufacturer, and doesn’t explicitly call for making up for a federal subsidy shortfall.

Tesla declined to comment. In its second-quarter shareholder update this year, the company said, “Model 3 has been designed to be affordably priced and to provide compelling customer value, even without government incentives.”

Assemblyman Phil Ting (D-San Francisco)
Assemblyman Phil Ting (D-San Francisco) (Russ Mitchell / Los Angeles Times)

Used cars and arbitrage opportunities

The bill also expands the state’s “cash for clunkers” program, which pays out $1,000-$1,500 for qualified, decades-old cars to get high-pollution vehicles off the road. And it adds rebates for the purchase of used electric cars.

Funding for both programs, Ting said, would rise to $60 million from $30 million.

Ting defended the used car rebate as a way to broaden the demographics of electric car owners.

“Right now a used [all-electric] Nissan Leaf that’s coming off a lease is going for like $7,000 or $8,000. So we could have some more incentives, so more people in moderate-income communities could actually afford that car,” Ting said.

The rich rebates would create a big price gap between cars sold in California and in other states. That has led to speculation that the system could be exploited to buy cars in California with state rebates and sell them for thousands more elsewhere.

“I think selling cars is hard enough,” Ting said. “I don’t think anybody would do that business. You could bring up any number of hypotheticals, sure. Georgia just got rid of its electric vehicle subsidy. I haven’t heard of anybody coming here to do that arbitrage.”

A money mystery

It’s yet to be determined where the bill’s $3 billion will come from.

When Ting presented the legislation earlier this year, it called for the state’s electric utilities to bill customers to pay for motor vehicle subsidies. Politically, that did not fly. So a $500-million annual appropriation was put in the bill, which would add the money to the state’s greenhouse gas reduction spending. Fellow legislators didn’t like that, either, and Ting plans to remove the $500 million annual requirement.

The bulk of the money, Ting said, would come from the state’s cap-and-trade auction revenue, which funds the current rebate program. Under cap-and-trade, the state sets an upper limit on greenhouse gas emissions, and a market is created for rights to pollute beneath that limit.

Between 2013 and 2016 cap-and-trade auctions raised about $4.4 billion for the California treasury. That pays for a variety of programs, including high-speed rail, as well as clean-air buses and heavy-duty trucks.

The cap-and-trade program was recently extended to 2030, but future auction proceeds are uncertain. New spending on rebates from cap-and-trade would cut into other greenhouse gas programs, including mass transit.

The bill, Chadima said, directs the Air Resources Board “to look at the range of sources of funding that they have available to them.” That includes cap-and-trade revenue, “but also a number of other sources, and to pull together a portfolio of funding so that the program can be continuously funded,” he said.

What other sources? “We’re in the process of discussing that right now,” Ting said.

21 Comments on "Should California spend $3 billion to help people buy electric cars?"

  1. Kenz300 on Sun, 27th Aug 2017 9:48 am 

    Electric cars, electric trucks, electric lawn mowers, electric snow blowers, electric tools, the future is electric.
    Battery prices keep getting cheaper every year bringing down the cost for electric vehicles. Add to that lower operating costs, no oil changes and less maintenance and you have a winner.

  2. Sys1 on Sun, 27th Aug 2017 10:14 am 

    OMG, always dumb claims coming again and again.
    You first have to understand that in an electric car, the battery has the same role as the tank in a gasoline car.
    AKA the electric battery IS NOT a source of energy but a way to store energy.
    AKA a source of energy must feed the battery.
    AKA the total energy cost of the game is VERY BAD because :
    electric energy essentialy comes from natural gas and coal.
    A tank in a gasoline car is nothing more than an empty box. On the other hand, a battery car is a box full of lithium, which is itself limited on Earth, and worse, which decays with time. Try using a lithium battery 10 years daily, you’ll figure out your “tank” getting smaller and smaller until becoming useless.
    Moreover, energy density is so poor that heavy trucks or planes won’t work with lithium. And to finish the game, try using an electric car when weather is cold, very cold. No heat in car during winter, or by the way no air conditionner in summer, just because battery is so weak that it would be drained VERY fast.

  3. MASTERMIND on Sun, 27th Aug 2017 11:09 am 

    Electric cars cause more pollution and shift the CO2 emissions the manufacturing side.

  4. MASTERMIND on Sun, 27th Aug 2017 11:37 am 

    The Capitalists will sell us the rope with which we will hang them.

    – Vladimir Ilyich Lenin

  5. Outcast_Searcher on Sun, 27th Aug 2017 11:38 am 

    According to the Tony Seba meme, the case for EV’s will be completely compelling by 2023, without ANY subsidies.

    If there is any truth to that, then CA spending up to $17,500ish per EV (up to federal subsidy replacement plus up to $10K per car), is madness.

    It’s not like they don’t have a history of financial problems, over-spending, over-taxation, and a bunch of serious problems to solve, already.

    This is typical liberal madness. In, say, 2025, if EV’s STILL aren’t catching on because the Tony Seba and general solar/battery cost meme turns out to be greatly over-estimated, THEN some (smaller) subsidies might help.

    Like several $thousand a car to subsidize highly efficient hybrids, which more than double typical ICE mileage, would do a lot of good, for roughly a quarter of the spending per car.

  6. Outcast_Searcher on Sun, 27th Aug 2017 11:43 am 

    As if the CA government should pay $16,000 to Model 3 buyers (which will cost towards $50,000 apiece) who could buy, say, an off-lease Leaf for $8,000. (Source, the article).

    Liberals who think government should do more to help “poor” people should be totally outraged by this. But somehow, I don’t expect to hear too much complaining from liberals. Funny how that works.

  7. Davy on Sun, 27th Aug 2017 12:25 pm 

    “Like several $thousand a car to subsidize highly efficient hybrids, which more than double typical ICE mileage, would do a lot of good, for roughly a quarter of the spending per car.”

    Exactly… In addition tax the worst of the inefficient ICE vehicles. Until we have a renewable grid EV’s are fake green. Find ways to make them greener through renewable charging stations. Don’t declare them green because of a techno confusion of a 100% renewable energy grid in just a few years fantasy all the while they are being charge by FF. Keep things reality based please.

  8. Cloggie on Sun, 27th Aug 2017 2:42 pm 

    The Capitalists will sell us the rope with which we will hang them.

    – Vladimir Ilyich Lenin

    Vladimir who?

  9. baha on Sun, 27th Aug 2017 2:51 pm 

    This would solve CA problem with too much solar production during peak hours. A bunch of EVs plugged in would stabilize the grid.

  10. Cloggie on Sun, 27th Aug 2017 3:29 pm 

    Industry projection crucial price battery:

    $100/kWh should be possible

    Oh wait, it already has been achieved (for mass storage):

    E-motors are more robust than gasoline ones, hardly wear out. And they are silent and don’t stink.

  11. Anonymouse1 on Sun, 27th Aug 2017 7:42 pm 

    Why wouldn’t the uS subsidize EVs? After all, they have spent 100’s of billions, if not trillions subsidizing and supporting the purchase of oil-burning cars for at least 100 years, if not longer. In the world of oil-burners, 3 billion would be considered a rounding error. Besides, why should anyone have to bear the true costs of 2 ton latte fetchers, be it end-users or the corporations that actually manufacture them?

    Just another day in the Corporate Welfare States of amerikaaa…

  12. Makati1 on Sun, 27th Aug 2017 8:28 pm 

    Anon, you answered your own question. The oil companies are entrenched and will not allow anything to compete with their profits. They bought up the electric trolleys long ago to make way for buses. That was just the beginning of their monopoly. I’m sure they have an army of lobbyists in DC to make sure nothing electric threatens them.

  13. Anonymouse1 on Sun, 27th Aug 2017 11:26 pm 

    All true, but the larger point is this, once any industry reaches a certain critical mass, in amerika, the first thing they do, is not expand their production, do lots of advertising etc, none of that feel-good capitalism crap.

    No mak, the first thing any self-respecting amerikan capitalist does once they feel they have garnered enough attention, and attracted a few investors, is head of to washingdum, or their local mini-wash (or both), hat in hand, for a subsidy. And generally, the more the successful you are at obtaining such ‘gifts’, the more successful you tend to be-period. The relative merits, or lack off, of your merikan made product\service hardly warrant consideration.

    For some good, recent examples of corporate subsidy seekers in amerika…

    T-bone Pickens: wants taxpayers to underwrite the wholesale conversion of trains, 18-wheelers, tricycles etc, to Nat-gas as their primary fuel. His near-complete lack of success obtaining his sought after welfare, has not dissuaded him in the least from trying, or at least talking about it.

    ELon Musk: Hasn’t turned a profit, and little in the way of tangible products besides a few boutique EVs, since he sold his stake in Paypal, yet has somehow managed to convince TPTB and legions of fan-bois, that taxpayers should support both his EV company AND his crappy toy rockets with billions in corporate welfare.

    Corn Ethanol. A one-stop corporate welfare program for already heavily subsidized amerikan agri-corps and mega-farms.

    Those are just a few examples. No reason why EV makers shouldn’t hold their hand out like everyone else whose products cannot succeed on their own merits. But that’s merika for ya…

  14. GregT on Mon, 28th Aug 2017 12:04 am 

    No Anonomouse,

    That would be capitalism for ya. Something that needs to be maintained at any cost, up to and including, mass murder, genocide, planetary destruction, and even fucking your next door neighbour over for bragging rights.

    Those who have the most toys when they die, are the obvious winners.

  15. Makati1 on Mon, 28th Aug 2017 12:16 am 

    Anon, you still don’t seem to get it. The oil industry runs the US along with the Military. They control who gets what, not the “elected” reps. Think ME activities. The US military is there to rape the oil reserves for TPTB. A corporate army paid for by the taxpayer.

    The government may dribble enough to keep the serf’s hopes up, but not enough to be of real help. Billion$ mean nothing when you are up against trillion$ in opposition. The oil industry. Musk is a snake oil salesman, nothing more. Living well off of the suckers.

    Electric cars are dead in the water as there is no way to start a huge industry from scratch in the world today. Not unless you have decades to build it from small to a competitive, profitable size. Mother Nature is not going to give us that long.

  16. GregT on Mon, 28th Aug 2017 1:28 am 

    Musk is an entrepreneur and an industrialist. Entrepreneurs make their fortunes from skimming off of everybody else, and industrialists make their fortunes by raping the environment. There is nothing righteous, or descent, about either.

  17. Plantagenet on Mon, 28th Aug 2017 1:34 am 

    What better use could there be for tax money than to help middle class people buy expensive cars?


  18. Theedrich on Mon, 28th Aug 2017 2:26 am 

    War for money?  It has been said that Afghanistan holds a possible trillion dollars worth of battery-necessary lithium in its earth.  But no, the godlings in DC would take us to war only for the most religiously moral of reasons.

    By the way, the genral buzz is that we have been at war in A-stan for sixteen years.  This is another bit of fake news.  In reality we have been at war there ever since the 1980s, when we worked to throw the Soviets out of the country, using appeals to fundamentalist Mohammedanism (Salafism) to enlist the energy of the locals against the Russkis.  Our military intervention there has never stopped.  Three decades is a more accurate description of the time we have been stuck in that quicksand.

  19. jerome purtzer on Mon, 28th Aug 2017 1:23 pm 

    Volkswagen has a electric powered vehicle, a Golf/Rabbit model that has a .9 liter diesel engine that drives a generator that powers the electric drive. 175 MPG. 275 MPG on the demonstrator models brought to the USA. Seems like a much easier way than all the battery stuff. If you use a Huttlein Kugelmotor range extender then you can burn any fuel or use compressed air.

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