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If EV rebates subsidize luxury cars, the Biden plan's already a bust

Commentary: There's zero reason to offset the price of a six-figure electric car.

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- 03:31
President Joe Biden

Rebates should benefit buyers shopping affordable cars, not luxury vehicles.

Jim Watson/Getty Images

President Joe Biden on Wednesday announced a sweeping $2.25 trillion infrastructure plan, which calls for a big change to the way the US treats electric car buyers -- the administration wants direct rebates at the point of sale. In other words, the government may soon provide you, the buyer, money towards a brand-new EV right as you sign on the dotted line. No tax credit, just cash going back into your pocket.

However, if the administration fails to focus this effort on American car buyers that need it most, the plan is already broken. Surely, it can't be hard to learn from the federal EV tax credit program, which fails to focus on the right cars.

For example, today, anyone can walk into a Porsche dealership and order a $150,000 Taycan Turbo electric sedan. And in 2022, when filing their 2021 taxes, they'll receive a $7,500 tax credit from Uncle Sam, so long as they paid more tax than the credit. It's a broken system ripe for exploitation, but only because the federal electric vehicle tax credit wasn't meant to last forever. Way back in 2009, the Obama administration faced a sputtering economy, and part of the plan was to not only put Americans back to work, but also put the public in more fuel-efficient vehicles. That led to the creation of a $2.4 billion fund to subsidize the purchase of an EV or PHEV and other initiatives.

At the plan's inception, few cars that qualified were on sale. The Chevy Volt, Nissan Leaf and Tesla Model S became the poster children. Today, that's not the case, with far more luxury EVs on sale than modestly priced electric models. The federal government also seriously underestimated how long it'd take to see EVs and traditionally powered cars reach price parity. We're still not there, hence the push to continue subsidizing electric cars in some form.

I don't make policy, nor do I really want to. But there is simply no logical reason why an individual with their heart set on a Bentley Bentayga Hybrid or a Ferrari SF90 Stradale needs the feds to help them out. Uh-uh, no way. I'm not making those examples up, either: check out what the government pays for all qualifying cars here. If the Biden administration really wants point-of-sale rebates to work, it needs to fix the problems with the tax credit system and build from there. At a minimum, we deserve a sliding scale for the credit. Better yet, a price cap.

To be clear, the White House hasn't provided details on how much it's looking to give car buyers for an EV, but if Senate Majority Leader Chuck Schumer had any sway in this plan, as he hinted, it's going to be a significant chunk of cash. Just for the sake of argument, let's say the plan knocks $7,500 off at the point of sale. 

The average transaction price for a new car in the first quarter of 2021 sits at $38,000. Today's "affordable" EVs often float around the same figure. Apply the $7,500 and we're looking at a $30,500 price. Yet, imagine how much further the plan could go if the government decided not to spend $7,500 on someone ordering a $62,000 Tesla Model Y Performance. A $30,000 car for the average American is, more than likely, already quite a stretch. Maybe a more generous rebate with the right restrictions could double to create a $23,000 car. Or perhaps we should extend this program to certified preowned EVs, which already start from a much more affordable place.

Direct rebates always felt like the next step in putting more zero-emissions vehicles on the road, but let's not understate how significant of a change it would be with billions of dollars in tax revenue used to make it happen. I'm not out to slam anyone who wants to buy an expensive EV, either. The cars named happen to be good examples of the broken system. And they're good cars, too.

But if you really want to kick off the EV transition, putting average Americans in reasonably priced cars is the ticket. Dishing out thousands of dollars to buyers who can already pony up six figures simply isn't.