Surveys show that manufacturers are facing a dilemma when it comes to manufacturing EVs. Wealthy customers are buying bigger cars for the same money they could have spent on an electric car. This has the effect of slowing down the penetration of affordable electric cars into new markets. So, to promote and support EVs, governments must spend on subsidies. The goal is to make the market self-sustaining with no government support; read ahead to know more about this.
The Government Spending
Government incentives rose by 72% and beyond over the last few years to support the transition to affordable electric cars. This is one of the main reasons for the increase in global EV, as well as plug-in hybrids purchases. Also, their adoption is more accelerated in European and Asian countries as part of government efforts to reduce carbon emissions. However, the major hurdle for this is that in countries like India, there is a lack of reliable EV charging infrastructure. Surveys have shown that the total share of national government spending to support EV purchase in the form of tax breaks has remained unchanged. Also, these can be considered as foregone government revenue.
Tax Breaks And Grants
Globally, national governments support EV spending in multiple ways. They provide tax breaks, give lump-sum grants, or a more complex method that varies according to the income of the buyer or according to the electric vehicle attributes. Most of these supports come in the form of direct expenditures, and less in the form of tax expenditures.
A Sustainable Market
The goal is to bring sustainability to the EV market, and this is the key test for national governments. They hope to achieve this by first stabilizing the market through grants or tax breaks, and then gradually reduce their share in the spending of EV purchases. Also, keep in mind that the governments must adjust the incentives they provide according to the growth of the EV market, or else it can put a strain on public budgets. Moreover, in the current economic downturn, they must extend this support to not offset the shift in mindset that encouraged people to buy a small electric car.
China is at the forefront of EV adoption, and there the maximum subsidy for EVs is reduced by half since July 2019. Likewise, in the US the federal tax credit for manufacturers is being phased out. In short, policy changes are being made in countries where the EV adoption is underway on a large scale.
On a final note, it is still uncertain when the EV market will attain sustainability, and this has been exacerbated by the current economic downturn.