1. Purchase Incentive Tools

Vouchers, rebates, tax credits, and sales tax exemptions are the most common EV financial incentives for consumers. For an additional analysis on incentive structures, check out Ingredients for Equitable Transportation Electrification report.

Typically, state and local governments use general funds for purchase incentives. California pays for its vouchers and rebates through cap-and-trade dollars collected from polluters. Paying for purchase incentives through general funds can have unwanted consequences, such as increasing the risk of low-income safety net services being cut during budget crunches, since safety net services typically are cut first. This increased risk perpetuates disinvestment and the cycle of poverty in low-income communities of color.

General fund-backed purchase incentives should minimize their impact on the general fund by leveraging private capital or repurposing existing public dollars and programs. Purchase incentives should also maximize benefits to underserved communities, to make up for the increased risk of losing safety net services.

Each purchase incentive tool is described below:

A. Voucher

EV incentives paid through cash vouchers lower the upfront cost of EVs by giving the consumer a payment of a specific amount to buy an EV. EV vouchers typically come from local and state governments and usually require an application to determine if an individual is eligible. Eligibility is usually determined prior to the purchase of the EV.

For example, California offers qualified applicants a $9,500 voucher if the individual is low-income, agrees to retire an eligible high-polluting vehicle, and intends to purchase a new or used EV (either BEV or PHEV) (more info below).

Benefit:

Cash vouchers give the consumer the equivalent to “cash-in-hand,” allowing the consumer to use the voucher at the point of sale to bring down the price of the EV on the spot. Consumers, then, are able to get better financing packages and lower interest rates resulting in lower monthly payments.

For example, if Sekita uses a $9,500 voucher to purchase a used 2013 Chevy Volt for $13,000, then she only has to finance $3,500. If Sekita were using a rebate (discussed below) instead, she would have to finance the full $13,000 and receive the rebate a few weeks later, likely resulting in a higher interest rate and higher monthly payments. She would also likely have to put some of her own money down, adding another obstacle.

Equity Guide:

Vouchers are the most effective purchase incentive tool in giving low-income drivers real, meaningful access to EVs because they reduce the price of the EV at the time of purchase, his creating more attractive and affordable financing scenarios. Vouchers can further increase EV access if they can be used for used EVs, which are a bargain right now for consumers. For example, you can get a used, reliable, 2012 Nissan Leaf under 50,000 miles for $10,000 or less.^[4]

Additionally, targeting vouchers exclusively to low-income consumers increases the equity and cost-effectiveness of voucher funds by directing limited dollars to consumers who need the benefit the most.

Click here for a California example.

B. Rebate

Rebates typically work in two ways: instant cash rebates for consumer goods at the time of purchase (akin to cash vouchers above) or partial or full reimbursements after the purchase.^[5]

After-Purchase Rebates:

Most rebates are of the mail-in variety and this is typically true for EV rebates as well. Mail-in rebates require consumers to pay the full cost of a good at the time purchase, then to send documentation to the manufacturer, retailer, or rebate program administrator to receive a rebate by mail.

Instant Rebates:

Also known as “point of sale” rebates, require consumers to fill out documentation at the point of purchase. Eligibility is determined on the spot and the rebate is applied immediately. The accounting for the rebate is typically worked out electronically through money transfers between the rebate provider (entity holding the rebate funds) and the business (entity ultimately receiving the actual funds), with the value benefitting the rebate eligible consumer.

Connecticut’s program is an example of a point of sale rebate.

Benefit:

Consumers effectively buy an EV at a discount equal to the size of the rebate, but have to wait a few weeks to get the benefit. However, if the rebate is of the “instant cash” variety, the benefit works like the voucher discussed above, equivalent to cash-in-hand.

• Click here for a California example.
• Click here for a Massachusetts example.
• Click here for a Connecticut example.

Equity Guide:

After-purchase rebates are less effective than instant rebates and vouchers in helping low-income consumers access EVs and therefore less equitable.

A more equitable rebate should be designed and administered in a way that allows low-income consumers to take advantage of the subsidy at the point of purchase. This is especially true when further financing is needed to complete the purchase of a high cost item like a vehicle. Making used EVs eligible for the rebate makes it more equitable given their great affordability advantage.

Additionally, targeting rebates to low-income consumers only and/or creating an income cap on eligible consumers increases the equity and cost-effectiveness of rebate funds by directing limited dollars to consumers who need the benefit the most.

Tips for Success:

MSRP Cap versus Income Cap
Typically, income caps ensure that limited public dollars go to consumers who need the EV subsidy the most, making them a more equitable and cost-effective approach. MSRP caps, on the other hand—like Washington state’s $35,000 cap—do not stop wealthy individuals like Mark Zuckerberg from getting the sales tax exemption benefit when he buys a 2016 Nissan Leaf for $30,000, even though he has no need for any incentive. As a result, the public ends up subsidizing a purchase that would have happened anyway.

C. Sales Tax Exemption

Sales tax exemptions for EVs lower the final cost by excluding them from sales taxes on purchased goods. Local or state laws create sales tax exemptions. Typically, the consumer sees the sales tax deducted from the overall cost of the car and the dealer documents that sales tax exemption to be later reported in the dealership’s tax returns.^[6]

Sometimes EV sales tax exemptions are coupled with an MSRP cap, as is the case in Washington state,^[7] which limits exemptions to EVs sold or leased for $35,000 or less.^[8]

Benefit:

The consumer effectively receives a discount on the total cost of the EV by not having to pay additional sales tax at the time of purchase.

Equity Guide:

Sales tax exemptions can be effective in giving low-income drivers real, meaningful access to EVs because they reduce the price of the EV at the time of purchase.

However, practitioners should prioritize the most equitable strategy to fund low-income purchase incentives. That means purchase incentive programs should rely on funding mechanisms that minimize the need to dip into general fund dollars. For example, California’s uses polluter fee dollars to fund EV vouchers and rebates.

Additionally, targeting sales exemptions exclusively for low-income consumers increases the equity and cost-effectiveness by ensuring lost sales tax dollars are spent on consumers who need the benefit the most.

Tips for Success:

MSRP Cap versus Income Cap

See above.

D. Tax Credit

Tax credits for buying EVs can lower how much you owe each year in income taxes (federal, state, and sometimes local). “Different from tax deductions, which lower your taxable income, tax credits can actually shave dollars off your tax bill.” ^[9] In some cases, they might result in a refund. You can think of tax credits as a government incentive program to reward people for making good decisions, like buying EVs, going to college, or saving for retirement.^[10]

Customers leasing EVs can also benefit from tax credits. Usually, leasing companies—which are the actual owners of the EV—factor in tax credits to the cost of the lease resulting in lower monthly lease payments for the customer.^[11]

Federal Qualified Plug-in Electric Drive Motor Vehicle Credit Tax Credit and Other State Tax Credits:

Federal Tax Credit
The U.S. gives an income tax credit for buying new EVs. The credit amount ranges from $2,500 to $7,500 depending on the battery size of the vehicle—the more electric charge an EV can hold, the bigger the tax credit. For example, you can get a $2,500 credit for the Toyota Prius plug-in hybrid (electric range: 20-30 miles), whereas the Chevrolet Volt (electric range: 53 miles) and Nissan Leaf (electric range: 107 miles) qualify for a $7,500 credit.^[12]

There’s a myth that the federal EV tax credit is automatic and available to everyone. False. You can only get the full $7,500 credit if your full-year tax bill is $7,500 or more. In other words, you must have a tax liability of $7,500 or more to get the full $7,500 tax credit.

Let’s say you buy a Nissan Leaf or similar electric range vehicle and you owe $5,000 in income tax for 2017.^[13] You will only get $5,000. The U.S. will not write a refund check for the other $2,500 and that “unused portion of the credit can’t be applied against the following year’s taxes.” ^[14] But hey, having to pay $0 in taxes because you bought a Nissan Leaf versus paying $5,000 in taxes sounds like a good deal.

Other State Tax Credits
Various states have their own EV tax credits that generally work the same as the federal tax credit. However, assignable state tax credits like Colorado’s can provide a point of sale benefit. Assignable tax credits allow EV buyers to assign the credit to a dealer or financing entity to get an immediate discount on the purchase price.^[15] Additionally, some states (including Colorado) provide fully refundable tax credits. In other words, the full value of the EV tax credit is available to all EV buyers, regardless of their tax liability.

Click here for a list of those tax credits and other incentives by state.

Click here for more info on what buyers might expect with EV tax credits.

Benefit:

The EV is effectively purchased at discount equal to the size of the tax credit. Usually, you just have to wait for tax season to get the benefit.

Equity Guide:

If not assignable, state or federal tax EV credits are less effective than rebates and vouchers in helping low-income consumers access EVs and therefore less equitable. The federal EV tax credit disproportionately benefits higher income individuals because low-income individuals rarely have tax liability, let alone $7,500’s worth. In fact, 90 percent of federal EV tax credits go to consumers with yearly incomes of $75,000 or more.^[16]

A more equitable EV tax credit will only apply to low-income individuals and work like a tax refund, not requiring a certain threshold of tax liability. This would give low-income individuals the benefit of effectively buying an EV at below market price.

Click here for more info.

E. Other Incentives

Examples of other useful, non-purchase EV incentives:

• Utility rates that encourage people to charge when electricity is less expensive
• HOV Lane Access
• Free or Reduced Rate Parking
• Reduced Vehicle Registration Fee
• Insurance Discounts
• Other Discounts and Special Offers

Equity Guide:

To the extent these other incentives are limited or have a “first come, first served” model, a certain number should be reserved for low-income drivers and low-income drivers should be prioritized.

Helpful Links & Examples:

Examples

• More examples of various EV incentives by state here
• Reduced Vehicle Registration Fee examples: District of Columbia, Colorado

F. Examples from California

CLEAN VEHICLE REBATE PROJECT (CVRP) (REBATE):

CVRP is a statewide program that provided rebates to all Californians of $2,500 toward the purchase or lease of a new battery electric vehicle (like a Nissan Leaf) or $1,500 for a new plug-in hybrid (like a Chevy Volt). In 2014, the Charge Ahead California Initiative (SB 1275, De León) directed CARB to limit eligibility based on income to make the rebate more cost-effective and equitable.

As of March 29, 2016, low- and moderate-income drivers who have household incomes less than or equal to 300 percent of the federal poverty level now qualify for increased rebates. For example, a single person making $35,640 (or less) will now qualify for $4,000 in rebates for battery electric cars and $3,000 for plug-in hybrids. An applicant living in a four-person household with a combined income of $72,900 (or less) can also get the increased rebates. Applicants will have to report income on CVRP applications, and will be subject to random income-verification checks.

Also, as of March 29, 2016, consumers are not eligible for the CVRP program if their gross annual incomes are above:

• $250K for single-filers
• $340K for head-of-household filers
• $500K for joint filers

Nonetheless, we must do more to ensure the income cap saves limited rebate funding for consumers who need them most.

Click here for more info and see below for more resources.

Helpful Links & Examples:

Examples

• Income verification info
• California rebate implementation manual
• California rebate administrator solicitation
• California sample grant agreement for administrator
• Connecticut rebate implementation manual

Clean Cars 4 All (Voucher):

The Clean Cars 4 All Program provides additional incentives to help low-income individuals and families scrap old, polluting clunkers and replace them with used or new advanced clean technology vehicles such as conventional hybrids, plug-in hybrids, or battery electric vehicles.

• Clean Cars 4 All Voucher: P who scrap old clunkers can receive vouchers for replacement vehicles worth between $5,000 and $9,500, depending on income level and the type of vehicle to be purchased (e.g. conventional hybrid, plug-in hybrid, or battery electric vehicle). Those vouchers can exceed the resale value of low-mileage used EVs that are still under warranty, providing participants immediate access to the benefits of driving an electric vehicle (which is the cost equivalent of driving on dollar-a-gallon gasoline).
• Charging Equipment Incentive: Program participants can also get an additional $2,000 for the purchase and installation of a charging station for battery electric cars at their homes.
• Mobility Option: If participants scrap an old clunker, but don’t want to replace it, they can get between $2,500 and $4,500 (depending on income level) in vouchers for public transit passes and car-sharing.

Currently, this program is available in disadvantaged communities in four regions:

• The South Coast Air Quality Management District – includes all of Orange County and the urban portions of Los Angeles, Riverside, and San Bernardino counties.
  • Visit replaceyourride.com for more info or call toll free (855) 483-5107.
• The San Joaquin Valley Air Pollution Control District – includes all of San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings, and Tulare Counties and part of Kern County. Attend a free smog check “Tune-in, Tune-up” event to qualify.
  • Visit valleyair.org for more info on “Tune-in, Tune-up” or call (559) 230-5800.
• The Sacramento Metropolitan Air Quality Management District- includes Sacramento and Yolo Counties, the eastern portion of Solano County, the southern portion of Sutter County, the western slopes of El Dorado and Placer Counties up to the Sierra crest, and includes four other local air districts
  • Visit Sacramento Clean Cars 4 All for more info or call 855-201-5626
• The Bay Area Quality Management District – includes San Francisco Bay: Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, southwestern Solano, and southern Sonoma counties
  • Visit Bay Area Clean Cars for All for more info or call 855.256.3656

Click here for more info on Clean Cars 4 All.

Helpful Links and Examples:

• Automotive Dealership Operations Manual (Replace Your Ride)

Table: Income Levels to Determine Incentive Eligibility in CA

2. Financing Assistance

Low-income individuals tend to lack credit or have bad credit, raising a barrier to good vehicle financing and leading to lower vehicle ownership rates. Poor credit or no credit means higher interest rates and high monthly payments that may be impossible for those living paycheck to paycheck. As a result, low-income consumers need credit enhancement to make loan options practical and accessible.

Financing assistance programs like loan loss guarantees for financial institutions or programs that buy down interest rates for consumers can improve loan options for low-income individuals interested in getting into an EV.

A. Loan Loss Guarantees

Loan loss guarantees (a.k.a. loan loss reserves) reduce risk for financial institutions making loans to individuals with low credit scores or no credit history. The guarantee is a portion of the bank’s cash set aside to cover potential losses for bad loans.^[17] Loan loss reserve programs are typically funded through governments and require the beneficiary of the program (e.g. low-income consumer interested in purchasing an EV) to go through an application process.

For example, Opportunity Bank participates in a state funded loan loss reserve program and so will make loans to individuals who may not traditionally qualify for a loan or would only qualify for very high interest rate loans. Opportunity Bank can now provide low-interest loans to low-income individuals because they pose less of a risk for the bank than without the loan loss reserve. If the individual defaults, the bank can tap into its state-funded loan loss reserve to cover any dollars that were not paid.

Benefit:

A loan loss guarantee allows low-income consumers to access loan/financing options that otherwise would not be available to them, particularly if they lack credit or have bad credit. They can get lower interest rates with lower, more manageable monthly payments.

Equity Guide:

Loan loss reserve programs for EV purchases should strive to provide low interest loans for low-income individuals to minimize the overall financing costs, making monthly loan payments more accessible. To further increase EV access for low-income consumers, these programs should cover purchases of both new and used EVs.

Moreover, traditional credit worthiness assessments do not consider the benefits of lending to a consumer purchasing a fuel-efficient car. When fuel and maintenance cost savings are taken into account, lower interest rates are justified because the consumers enjoying those savings have a greater ability to repay loans than their credit history or credit score might indicate.^[18]

Additionally, targeting loan loss reserve programs to low-income consumers only increases the equity and cost-effectiveness of the program by ensuring limited dollars are spent on consumers who need the benefit the most.

B. Price Buy-Down Vouchers

Traditional buy-downs are like prepayments on a loan that reduce the monthly payments thereafter. Buy-down vouchers to purchase EVs work similarly to cash vouchers, discussed above. They lower the upfront cost of EVs by giving the consumer cash (or equivalent) to make buying an EV more affordable. Buy-down vouchers for EVs typically come from local and state governments. These vouchers differ from cash vouchers in that they are directly tied to financing of the EV. Eligibility for the buy-down and its value is applied during the financing process.

Tip: Buy-down vouchers should not be confused with buy-down offers from dealers, which do not result in savings to the consumer and only temporarily reduce a loan’s interest rate and lower the monthly payment.^[19]

Benefit:

Buy-down vouchers reduces the point-of-sale cost of EVs, making them more affordable and accessible for low-income consumers.

Equity Guide:

Buy-down vouchers should be coupled with low-interest loan programs to most effectively give low-income drivers real, meaningful access to EVs. For example, a financing assistance pilot program in Richmond, California (see below) combines low-interest loans with buy-down vouchers to maximize EV access for low-income consumers. Making the buy-down available for used EV purchases will further increase equity.

Additionally, targeting buy-down vouchers to only low-income consumers increases the equity and cost-effectiveness of the buy-down by ensuring limited dollars are spent on consumers who need the benefit the most.

Tip: Minimum ownership requirements (e.g. 30-month minimum) should be used to deter gaming of financing assistance programs to obtain an illegitimate benefit.

C. Example from California

The California Air Resources Board selected the Community Housing Development Corporation (CHDC) in Richmond as a regional pilot administrator. CHDC provides residents of disadvantaged communities in Alameda, Contra Costa, Santa Clara, Santa Cruz, Solano and San Francisco Counties:

• Loans of $4,000-8,000 at 8% interest
• Up to $5,000 in buy-down vouchers
• Vouchers of up to $2,000 to buy and install EV charging equipment in single-family homes or multiunit dwellings

Click here for more info.

The California Air Resources Board selected the Beneficial State Foundation (BSF) as the statewide program administrator. BSF provides low-income residents throughout the state with a vehicle buy-down incentive and offers competitive financing options.

Click here for more info.

Helpful Links and Examples:

Examples of solicitations, applications, and grant agreements:

• Financing Assistance Pilot Program administrator solicitation
• Financing Assistance Pilot Program administrator application
• Sample grant agreement for administrator

Other Resources

More helpful info:

• Mo’ Money, Mo’ EVs: More Electric Car Rebates Available for Low-income Californians (March 2016) (The Greenlining Institute)
• EVs Need Equity: California is Ditching Big Oil to Charge Ahead with Clean Cars for All (October 2016) (The Greenlining Institute)
• An Electric Vehicle Buyer’s Guide: Low-cost options are hitting the road (Sierra Club)
• Guest view: Electric vehicles growing option for Valley (May 2016) (Recordnet.com)
• Driving Out of the Red with Greener Cars (March 2014) (New America Foundation): See pages 11-16.

Examples:

• Making the Cleanest Cars Affordable (California Air Resources Board): fact sheet
• Clean Vehicle Rebate Project (Center for Sustainable Energy)
• Replace Your Ride (EFMP Plus-Up) (South Coast Air Quality Management District)
• Testimonial: EFMP Plus Up Customer – Jerome Mayfield (Valley Clean Air Now)