Proposed Gasoline Car Bans Could Spark the Electric Vehicle Industry

Posted on by Brett Leininger

 

Although electric vehicle (“EV”) sales do not account for a large portion of global automobile sales, recent developments in some of the major global automotive markets promise to expand the EV market rapidly in the coming years. In September, China became the largest market—following a handful of mostly European countries—to declare its intention to ban the sale of gasoline and diesel cars in the near future.1 The declaration could be a sign of things to come in America as well. Governor Jerry Brown recently expressed his desire to implement a similar ban in California.2 In the wake of these announcements, a number of global automakers have issued statements of their own intentions to expand development and production of electric cars.3

Electric automobile sales have generally been hindered by consumer aversions to (1) high prices and (2) inconvenience.4 Development and production of the batteries required to power electric cars have proven prohibitively expensive—and this expense has ultimately been passed down to consumers. In recent years, however, the cost associated with researching and producing batteries has declined precipitously, and research indicates that it will continue to decline.5 This lower cost should allow electric vehicles to better compete with comparable internal combustion engine cars.6 Automakers that have been hesitant to enter the market for fear of manufacturing electric vehicles at a loss due to battery prices may be tempted to enter the market as battery prices continue to drop.

Automakers are seeking other means to bring a cheaper product to consumers. Tesla, for example, has adopted a direct distribution model whereby it sells its cars directly to consumers without utilizing a dealership middleman.7 This model potentially lowers costs for consumers by eliminating the cost of double marginalization, where consumers must bear the cost of profits for both the automaker and their dealer.8 Traditional automakers, using dealerships to retail their cars to the public, are prohibited from selling cars directly to consumers because such an arrangement would undercut their dealers. These automakers have fought Tesla in state legislatures to prevent the company from selling directly to consumers sans dealership; state legislatures have taken divergent stances on whether these restrictions apply to carmakers with no dealers at all, such as Tesla.9

Another significant obstacle inhibiting widespread American acceptance of electric vehicles is convenience. In the early years of electric vehicle production, consumers were concerned that batteries did not provide sufficient range and fears that there was inadequate infrastructure for the cars. That story is beginning to change. Advances in battery research and development are producing more powerful batteries.10 The charging infrastructure remains an issue, but cities with healthy electric vehicle sales are making strides to meet the demand for more charging stations.11

The American federal and state governments have primarily sought to promote sales in electric vehicles through financial incentives for consumers. The federal government currently offers an income tax credit of up to $7,500 for consumers who opt for electric vehicles over gasoline alternatives.12 This credit, designed to stimulate the initial production of electric vehicles, is phased out for EV purchases from automakers that have sold 200,000 qualifying cars, a sales target that Tesla will likely meet within a year.13 State governments are generally less generous, but many do still offer rebates, tax credits, and various non-financial incentives.14 Recently, however, some states have begun to scale back incentives for consumers to buy electric. These states have repealed or let expire their incentive programs and have begun to impose registration fees for electric vehicles.15

The recently proposed bans on gasoline cars may prove to be the catalyst that the EV market needs to finally make inroads into the American automotive market. Lower production costs will allow more automakers to enter the electric fray and compete with the relatively few models on the market. Tesla’s new Model 3 (priced at $35,000, before rebates16 will bring it into competition with the existing electric vehicles at the lower end of the market. At the same time, BMW’s plan to enter the market with electric options of their existing models17 could increase competition in the luxury EV market that Tesla currently dominates. It remains to be seen whether automakers will follow through with their recently announced plans, but the market is ripe for a surge in electric vehicle sales.

  1. Sherisse Pham, China Wants to Ban Gas and Diesel Cars, CNN Money (Sept. 11, 2017, 1:18 PM), http://money.cnn.com/2017/09/11/news/china-gas-electric-car-ban/index.html. ↩

  2. Ryan Beene & John Lippert, California Considers Following China with Combustion-Engine Car Ban, Bloomberg (Sep. 26, 2017, 12:57 PM), https://www.bloomberg.com/news/articles/2017-09-26/california-mulls-following-china-with-combustion-engine-car-ban. ↩

  3. See Bill Vlasic & Neal E. Boudette, G.M. and Ford Lay Out Plans to Expand Electric Models, N.Y. Times (Oct. 2, 2017), https://www.nytimes.com/2017/10/02/business/general-motors-electric-cars.html. ↩

  4. See Aarian Marshall, The Tricks and Treats California Can Use to Banish Fossil Fuel Cars, Wired (Oct. 3, 2017, 8:00 AM), https://www.wired.com/story/california-ban-fossil-fuel-cars/. ↩

  5. International Energy Agency, Global EV Outlook 2017, 1, 14 (2017). ↩

  6. Id. at 15 ↩

  7. Daniel A. Crane, Tesla, Dealer Franchise Laws, and the Politics of Crony Capitalism, 101 Iowa L. Rev. 573, 580 (2016). ↩

  8. Daniel A. Crane, Why Intra-Brand Dealer Competition is Irrelevant to the Price Effects of Tesla’s Vertical Integration, 165 U. Pa. L. Rev. Online 179, 186 (2017). ↩

  9. Crane, supra note 7, at 583-588. ↩

  10. International Energy Agency, supra note 5, at 6. ↩

  11. See Marshall, supra note 4. ↩

  12. 26 U.S.C. § 30D. ↩

  13. Fred Lambert, Tesla Salespeople are Telling Model 3 Reservation Holders that $7,500 Federal Tax Credit Runs Out in 2017, Electrek (Aug. 11, 2017, 8:26 AM), https://electrek.co/2017/08/11/tesla-model-3-reservation-holders-federal-tax-credit-model-s-upgrade/. ↩

  14. See Kristy Hartman & Emily Dowd, State Efforts to Promote Hybrid and Electric Vehicles, National Conference of State Legislatures (Sept. 26, 2017), http://www.ncsl.org/research/energy/state-electric-vehicle-incentives-state-chart.aspx. ↩

  15. Hiriko Tabuchi, Behind the Quiet State-by-State Fight Over Electric Vehicles, N.Y. Times (Mar. 11, 2017), https://www.nytimes.com/2017/03/11/business/energy-environment/electric-cars-hybrid-tax-credits.html. ↩

  16. Model 3, Tesla, https://www.tesla.com/model3 (last visited Oct. 10, 2017). ↩

  17. Edward Taylor, German Carmakers Relying on Volume to Confront Tesla, Reuters (Oct. 4, 2017, 10:31 AM), https://www.reuters.com/article/us-autos-electric-analysis/german-carmakers-relying-on-volume-to-confront-tesla-idUSKBN1C921T. ↩

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