Seriously, why are sedans, hatchbacks, and wagons getting shafted?
With crossovers, SUVs, and pickup trucks dominating the market, sports cars, hatchbacks, wagons, and sedans are all dying a slow death. Now there is a new threat that could speed up their demise: government intervention. The Biden administration is currently working with Congress to pass the Clean Energy for America Act, adding a more substantial tax credit on electrified vehicles.
While increasing the tax incentive seems like a great way to encourage more people to buy EVs, not every model is treated equally under the proposed bill. In fact, we believe the bill's different MSRP qualifiers for cars and trucks could discourage buyers from purchasing smaller, more attainable (and more efficient) vehicles.
First, a brief reminder of the stipulations in Biden's Build Back Better Act with regard to EV tax credits. The bill would increase the possible tax credit from the current $7,500 up to a potential $12,500. We say "potential" because $4,500 of that number is only applied to EVs built in the USA with union labor while $500 is for vehicles with a battery manufactured in the US. Without fulfilling these patriotic criteria, an EV would only qualify for the same $7,500 credit offered today.
These parameters exclude highly popular models like the Ford Mustang Mach-E (built in Mexico) and the Tesla Model Y (built using non-union labor). In fact, the Chevrolet Bolt and Bolt EUV are the only EVs on sale that would qualify for the full $12,500 credit. When they arrive on the market, the Silverado EV will theoretically get the maximum but the Ford F-150 Lightning will not because it's assembled in a non-union plant.
The intent of this bill is more complicated than to simply "get more people to buy an EV," as it heavily prioritizes American-built vehicles. The bill is also heavily biased against smaller sedans, hatchbacks, and wagons, which only qualify for the full tax credit if they have an MSRP under $55,000. Trucks and SUVs are judged differently and are eligible for the full credit as long as they cost less than $80,000. So that means someone buying an $79,999 SUV would get a larger credit than someone buying a $55,001 sedan.
How is that fair, and how does that help get more people to buy an EV?
Under these rules, the BMW i4 (starting at $55,400) could not qualify for the tax credit, but the Audi e-tron (starting at $65,900) theoretically could. Automakers will quickly learn from this. If they can get buyers into a more expensive truck or SUV because they include a larger tax credit, why would they continue to build electric sedans at all? Sedans could end up being regulated out of existence.
While the act has yet to pass through Congress, we are already starting to see similar policies at state level. The California Clean Vehicle Rebate Project recently released its new vehicle requirements that kick in on February 24, 2022. The rebates range from $1,000 to $7,000 and, like the proposed federal regulations, California's rules caps cars lower than SUVs, trucks, and vans. While sedans must cost less than $45,000, the taller vehicles can be priced up to $60,000. Crossovers are often a bit more expensive than their sedan counterparts, but a $15,000 spread ($25,000 at the federal level) seems needlessly excessive.
The thinking here is likely based around the potential benefit to the environment. Taking a gas-guzzling truck, SUV or minivan off the road has a larger impact than replacing a compact hatchback with an EV, but there's no reason consumers shouldn't be equally rewarded just because they don't need a huge family vehicle. And let's remember, an electric sedan will theoretically go further on charge than an SUV due to its aerodynamic efficiency. So why punish sedans simply for being better and more affordable?
If the goal is to lower our emissions by incentivizing more people to buy EVs, the government needs to stop putting so many asterisks in its policies. Do we want people to go electric, or do we want them to buy American? Getting more people to buy from American companies is a noble idea, but it detracts from the proposed objective. Likewise, do we want sports car and sedan owners to buy EVs, or is it more important to get families to switch? Again, we'd like to eliminate emissions as much as possible. Any EV purchase is a net positive and should come with the same monetary benefits.
The existing EV tax credit regulations are fraught with issues that could spell doom for the sedan as we know it. Unless lawmakers loosen up on the requirements, we don't see why any automaker would invest development dollars into building an EV that isn't an SUV, truck, or van.