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Current tax credit scheme to encourage electric car purchases is less valuable to car buyers and less fair, new study finds – ScienceDaily


Financial incentives play an important role in the widespread adoption of electric vehicles. A new study from George Washington University, however, shows that not all financial incentives are created equal in the eyes of potential car buyers, and the current federal incentive – the tax credit – is actually the least valued by car buyers. The study also found that while delayed incentives, such as federal tax credits, favor more affluent buyers, immediate incentives, such as direct rebates, favor used car buyers and buyers with lower incomes.

“The current federal electric vehicle tax scheme is a pain,” said John Helveston, an associate professor in GW’s Department of Engineering Management and Systems Engineering and co-author of the study. “First of all, you must have money. You have to be rich enough to buy the whole car and then wait for the rollback in April. But if you’re not in that class of buyer, you often need cash when you’re buying a car, or you’re not going to buy one. Our research shows that an immediate discount at the point of sale would be fairer and potentially more effective in expanding the market for electric vehicle purchases.”

Currently, consumers can receive up to $7,500 in federal tax credits for the purchase of an electric vehicle, but this requires buyers to pay the full price of the vehicle and then wait for the credit when they file their taxes. Researchers have found that changing the way a potential buyer is stimulated changes how much they value it.

They conducted a national survey of general car buyers to determine how much car buyers value different types of incentives such as tax credit, tax deductions, sales tax exemptions and immediate rebates. They found that car buyers overwhelmingly prefer an immediate discount at the point of sale. For the same amount of subsidy, shoppers valued the rebate at $1,450 more than the tax credit, and that value was nearly double that for low-income households, used-car buyers, and buyers on tighter budgets.

The researchers also found that changing the perceived value of the stimulus affects how much money the federal government can offer to keep the stimulus effective.

“If you gave an incentive to car buyers in the form of bonnet money, our research found you could reduce the subsidy by almost $1,500. That’s how much people value immediacy,” said Laura Roberson, a graduate student in engineering management and systems engineering at GW and lead author of the study. “So $7,500 in April when I file my taxes is the same to me as $6,000 if you gave me that money at the point of sale. That’s a huge difference in valuation.”

The research team estimates that, on average, the federal government could save $2 billion, or $1,440 per electric vehicle sold, if the federal subsidy, available between 2011 and 2019, was provided as an immediate rebate instead of a tax credit.

“All the money we’ve spent trying to get people to buy electric cars has mostly gone to the wealthiest car buyers. This is not conducive to the wider adoption of electric vehicles,” Helveston said. “Our findings suggest that structuring incentives in the form of immediate rebates will deliver greater value to customers, be fairer, and accelerate EV purchases in the United States.”

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Materials is provided George Washington University. Note: Content can be edited for style and length.

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