Hybrid and electric cars losing government support
Putting electric cars and high-MPG hybrids on the road is a crucial part of automakers' strategy for meeting the toughening federal gas mileage standards. But just as new models like the 2012 Ford Focus electric (opening for orders this week) are coming to market, government financial support for building and buying electric and hybrid cars is waning.
The changes are affecting both prospective buyers and the automakers themselves. Cash-strapped states are pulling back from electric and hybrid tax credits or rebates, and direct federal loans to electric car makers have come under scrutiny as part of the investigation into the loan guarantee for now-bankrupt solar panel maker Solyndra. The White House has announced that electric car companies Tesla and Fisker -- which is building cars in Finland -- would be included in the review of the Department of Energy's loan program.
On the state level, California has slashed in half its $5,000 rebate for buying an electric car, and funds for the remaining $2,500 rebate are expected to run out after another 5,000 to 6,000 vehicles. Tax breaks and other subsidies for hybrids and other high-mileage vehicles have expired in a variety of other states with budget woes, including Connecticut, New Mexico, South Carolina and Washington. A federal tax credit of up to $3,400 for hybrid buyers expired at the end of last year.
Will buyers choose hybrids & electrics without credits?
Federal and state subsidies are important to convincing consumers to decide in favor of electrics, says Michael Omotoso, chief power-train forecaster for J.D. Power and Associates. "The prices of electric vehicles and plug-in hybrids are very high without the tax credits," he says. Omotoso does say he expects the federal $7,500 tax credit for electrics to remain in place for now.The price differential is indeed significant. The new Ford Focus Electric will be priced at $39,995 including delivery charge -- the same as the competing Chevrolet Volt and $3,900 more than the Nissan Leaf. The most expensive gasoline Focus lists for just $22,700.
J.D. Power forecasts that hybrids and electrics will make up just 7.3% of global auto sales by 2020 and perhaps 15% in the United States. Analyst Omotoso says hybrid sales here have been lagging recently since gasoline prices have settled near $3.50 a gallon -- down from nearly $4 earlier this year. He sees the $4 level as a trigger that spurs sales of higher-mileage vehicles.Meanwhile, automakers will feel varying effects. Because Republicans are attacking the government loans, especially to Fisker, the electric car loan program may in effect be put on hold at least through the 2012 election. That could block Chrysler Group's application for an electric car loan. But Tesla said this week that it has orders for the entire planned production next year of its new Model S sedan and that it would become profitable in 2013 and repay its government loan.
If even $3.50 gas (or your environmental principles) is enough to make you consider a hybrid or electric car, check on these financial issues:
- Check for any subsidy in your state: The Department of Energy Alternative Fuels and Advanced Vehicles Data Center lists tax breaks and other incentives for all states. But double-check with your state motor vehicle bureau or other relevant department, since recent state changes may not be listed in the database.
- Figure your payback period carefully: If your chief motivation for buying a hybrid is financial rather than environmental, make sure your gas savings will be worth it. The $26,800 Nissan Altima Hybrid, although a terrific vehicle, would take 10 years to pay off the price differential over a gas Altima, according to Edmunds.com. But mileage champ Toyota Prius (51 MPG in city driving, 48 highway), which starts at $23,050 for the 2011 model, costs just $620 more than a gasoline Toyota Camry -- and would pay off the difference in less than a year, says Edmunds.
With the high prices of electric cars, your decision to buy one now would be more likely on environmental conviction or fascination with the new technology.
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