Saturday, June 3, 2017

EV cars in Denmark or how the government distorts markets. Is it free trade when Denmark imposes a 180% tax on imported gas engined cars?

By  on June 2, 2017  
  • 2017 Chevrolet Bolt, Image: General Motors
    Despite the protestations of many members of the green car crowd, dollars and cents do seem to play a major role in the motivation to purchase an electric or plug-in hybrid vehicle. Right now, EV proponents and domestic automakers are worried the U.S. won’t renew the green car tax credit — a segment-boosting incentive that shaves thousands off the price of a new electric vehicle.
    Some would argue if green car buyers are really devoted to the planet’s health, purchase price wouldn’t be an issue (assuming the buyer’s bank balance is sufficient). Individuals being what they are, motivations and circumstances will vary. Still, no one can argue that a tax credit doesn’t sweeten the pot, just as dealer incentives on the hood of a truck help move sluggish inventory.
    In Denmark, however, lawmakers have discovered that once-steady sales of EVs will slow to a trickle when green vehicle buyers are treated like regular car buyers. 
    Many countries, especially in northern Europe, continue to fling cash or tax breaks at buyers of electric or plug-in vehicles. Norway is famous for this, but it’s hardly alone in the game. The Canadian province of Ontario, for example, will reach into the treasury and hand over $14,000 to anyone looking to buy a Chevrolet Bolt (or a $100,000-plus Tesla). For a jurisdiction with the world’s largest sub-sovereign debt, that’s mighty generous. Some would disagree with the practice.
    Denmark’s method of stimulating green car sales involved removing the 180-percent import tax — currently levied on internal combustion vehicles — from the price of an electric vehicle. What a deal, compared to the alternative! However, economics reared its ugly head and, in 2015, the Liberal government of Prime Minister Lars Lokke Rasmussen announced a four-year phase-out of the tax exemptions.
    The plan was as follows: 20 percent of the registration tax would return for 2016, 40 percent in 2017, 65 percent in 2018, 90 percent in 2019, and no tax break at all in 2020.
    It didn’t take long before the results became clear. Registration of EVs soared in the last quarter of 2015, then plummeted after New Year’s Day, 2016. With just 20 percent of the tax levied on gasoline cars now applied to EVs, first-quarter 2016 sales fell 65 percent compared to the same period a year earlier. Sales for the first half of 2016 fell 80 percent compared to 2015.
    The green picture grew even darker as 2017 dawned. Sales of EVs and plug-ins in Denmark fell 60.5 percent in the first quarter of 2017, compared to Q1 2016. Compare that to the European Union average increase of 30 percent over the same period, or the nearly 80 percent rise seen in nearby Sweden (which offers a five-year tax break and a price incentive).
    Denmark’s decision to tax the purchase of EVs “completely killed the market,” Laerke Flader, head of the Danish Electric Car Alliance, told Bloomberg. “Price really matters.”
    For the powers that be in Copenhagen, 2017’s first-quarter sales only served to confirm what it already knew. While budgetary issues compelled the country to phase out the tax exemption, a screeching panic stop ensued.
    “It’s no secret electrical vehicle sales have been below what we expected a year and a half ago,” Tax Minister Karsten Lauritzen said in a late April statement. “The agreed phase-in has turned out to be hard and that likely halted sales.”
    Now, the tiny country has postponed the tax plan, at least until 5,000 EVs are sold in the 2016-2018 period. The gradual phase-out should return again in 2019. That year, green car buyers will face a 40-percent registration tax minus a $1,500 reduction, with tax increases increasing until the exemption disappears completely in 2022.
    While its taxation practices are exceptional, Denmark’s experience shows that the handover of tax dollars from the government to carbuyer — or fewer tax dollars handed over from the carbuyer to the government — still plays a role in the health of the EV market. It’s no wonder automakers like General Motors are scrambling to lower production costs and increase the range of their electric vehicles.
    One day — perhaps sooner than later in the U.S. — EVs will have to compete without assistance from on high. If that does happen, there’d better be an attractive MSRP to lure buyers away from gasoline.

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