(Bloomberg) -- The push by Tesla Inc., General Motors Co. and other carmakers to boost sales of electric vehicles was dealt a blow by House Republicans who on Thursday proposed eliminating a $7,500 per vehicle tax credit that has helped stoke early demand.
“That will stop any electric vehicle market in the U.S., apart from sales of the highly expensive Tesla Model S,” said Xavier Mosquet, senior partner at consultant Boston Consulting Group, who authored a study on the growth of battery powered vehicles. “There’s no Tesla 3, no Bolt, no Leaf in a market without incentives.”
If adopted, the repeal would take effect after the 2017 tax year, according to a summary of the bill released Thursday by the House Ways and Means Committee as part of a sweeping overhaul of the U.S. tax code that would eliminate some deductions and cut the corporate tax rate to 20 percent. The Senate is crafting its own version.
Automakers from Detroit to Yokohama are betting big on an electric future with plans to spend billions of dollars on new pure-electric models to be rolled out in the coming years despite limited sales to date. Availability of the credit has been capped at the first 200,000 qualifying vehicles sold by each manufacturer. No automaker has reached that cap yet.
With a 238-mile range and a $37,500 starting price, the Chevrolet Bolt set new benchmarks for a coming wave of electric vehicles that cost less and can drive further on a charge than most of today’s models. GM spokesman Pat Morrissey said in a statement that the company "believes in an all-electric future" and will work with lawmakers to maintain the incentive.
"In so many ways this is a shell game that when it ends hurts a lot of jobs in Michigan and middle class families and the benefits go to the wealthiest Americans," said Michigan Democrat Senator Debbie Stabenow, a senior member of the chamber’s tax writing committee. "It’s not a good deal."
A premature end could have outsized impact for Tesla, which is striving to scale up production of its least expensive electric car, the $35,000 Model 3 sedan. The company has said it has hundreds of thousands of would-be buyers holding reservations for the vehicle.
Tesla shares extended declines after Bloomberg reported on the proposed elimination, plunging as much as 8.9 percent to $292.63, the lowest intraday since May 4, before rebounding. The company declined to comment on the GOP proposal.
Eliminating the credit will also impact other carmakers offering electric vehicles such as GM and Nissan Motor Co. Ltd., which according to the Alliance of Automobile Manufacturers collectively offer more than 30 electric vehicle models in the U.S. market. Carmakers are under pressure to sell vehicles in higher volumes each year under an electric car sales mandate administered by regulators in California. Ten other states also follow that policy.
That puts the auto industry "in the middle between contradictory government policies," Alliance spokeswoman Gloria Bergquist said in a statement.
"There is no question that the elimination of the federal electric vehicle tax credit will impact the choices of prospective buyers and make the electric vehicle mandate in 10 states -- about a third of the market -- even more difficult to meet," said Bergquist, whose trade association represents a dozen automakers including GM, Ford Motor Co. and Volkswagen AG.
Ford didn’t immediately respond to a request for comment. Nissan declined to comment.
Sales of electric vehicles have been held back by a lack of variety of electric models, high sticker prices fueled by expensive battery packs and limited driving ranges compared to gasoline-fueled vehicles. Yet automakers expect those challenges to ease in the coming years.
"The EV tax credit repeal would cede US leadership in clean vehicles, putting our companies at a competitive disadvantage and threatening jobs while costing drivers more at the pump and increasing pollution," Luke Tonachel, director of the Natural Resources Defense Council’s Clean Vehicles and Fuels Project, said in a statement.
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