Looking at new plug-in hybrid tax credits

Hidden in the $700 billion “bailout” package is a brand new set of incentives intended to encourage the development of plug-in hybrid technology.  The program can potentially give more than double the incentive previously given to buyers of hybrids.  The law states that plug-in electric cars with at least a 4-kilowatt-hour battery pack will be eligible for a $2,500 credit.  The credit will increase with every kilowatt-hour of capacity with a cap of $7,500.  The program will last through 2015, and will phase out after 250,000 models are sold.  This low-risk program will only cost taxpayers less than $2 billion.  Nonetheless, we should take a look at how effective it will be at encouraging the diffusion of these cars into the U.S. auto fleet.


The main beneficiary from the addition to the bill should be Chevrolet and the greatly anticipated Chevy Volt. The Volt is expected to be able to have a 40 mile capacity before requiring the use of the gas mileage and has an expected price range of $30,000 – $40,000. The $7,500 credit will likely bring the car into the price range of many buyers. GM is expecting to sell about 10,000 Volts annually, but that number may be subject to change.

Another car eligible for the tax credit will be the Tesla Roadster. The $109,000 automobile is unlikely to experience a significant change in demand due to this tax-credit. Tesla Motors’ other model, the Model S sedan, expected to be priced at around $60,000, is unlikely to be affected any more. In fact, production on the Model S, was recently pushed back as a consequence of the credit crunch.

Other plug-in models from Nissan and Saturn are expected to hit the market in the next couple of years, and will also be able to take advantage of this new tax credit.

Overall, the impact on the U.S. auto fleet will be minimal, as will the change in fuel consumption. At the very least, this new law can serve to help GM, who is currently experiencing a bit of its own problems, in order to ensure demand for the Volt and break in the company’s new fuel-efficient line of cars.


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