Tax Credits To Cut Plug-In Electric Cars' Price Tags

Plug-in electric vehicles from GM and Toyota are not expected to hit showrooms for more than a year, but the first buyers will be eligible for a tax credit that could reach $7,500.

WASHINGTON (AP) -- Plug-in electric vehicles from General Motors and Toyota are not expected to hit showrooms for more than a year, but the first buyers will be eligible for a tax credit that could reach $7,500.

The tax incentives, which received scant attention in the $700 billion bailout of the financial industry, are aimed at making the green vehicles more affordable. Plug-ins are expected to be more expensive than conventional hybrids, and the tax breaks will give dealers a better sales pitch when carmakers begin production during the next five years.

Toyota Motor Corp.'s plug-in hybrid is expected in showrooms in late 2009, and General Motors Corp.'s Chevrolet Volt, an extended range plug-in electric car, is due in late 2010. GM also is introducing a plug-in version of the Saturn Vue in 2010, and Nissan Motor Co. will introduce an electric vehicle in the United States by 2010 and begin global production in 2012.

"There's a series of vehicles coming to market in the next couple of years, and I think the credits are going to do a lot to diminish that first hurdle," said Genevieve Cullen, vice president of the Electric Drive Transportation Association.

Under the new law, plug-in electric cars with at least a 4-kilowatt per hour battery pack will be eligible for a $2,500 credit. Vehicles will get $417 in credits for each additional kilowatt per hour of battery capacity. GM expects the Volt to get a $7,500 credit.

The $758 million in tax credits, which were developed by Sens. Orrin Hatch, R-Utah, and Maria Cantwell, D-Wash., and Reps. Dave Camp, R-Mich., and Jay Inslee, D-Wash., are similar to a tax program available since 2006 for buyers of gas-electric hybrids.

Lawmakers based the tax breaks on the hybrid program, but said the plug-in incentives were more important in an age of expensive gasoline. The vehicles, which can be recharged by plugging into a standard wall outlet, hold the promise of running on battery power for short distances.

"New technology is always more expensive, and what we want to do is try to jump-start this new technology," Camp said.

The hybrid incentives, which have given consumers tax breaks of up to $3,150, begin phasing out after an individual automaker sells 60,000 hybrids. Toyota reached that benchmark in late 2006 because of the success of the Prius, and Honda surpassed it earlier this year.

The plug-in tax credits, meanwhile, simply will begin phasing out when the entire auto industry sells 250,000 vehicles, giving companies more reason to get their cars into showrooms before their rivals. The program is scheduled to end by 2015.

Tom Stricker, Toyota's director of technical and regulatory affairs, said this approach will "incentivize the manufacturers to get into the game, because we're all working toward the same cap."

GM has estimated that buyers of the Volt, which is expected to draw power from a 16 kilowatt-per-hour lithium ion battery for the first 40 miles, will qualify for the maximum credit of $7,500. The Volt is expected to cost $30,000 to $40,000.

GM spokesman Greg Martin said the vehicle's "propulsion system will be expensive. Tax incentives are an effective tool that helps make the upfront price equation for the consumer more attractive and can help spur early adoption of new technology."

More in Supply Chain