Are California’s new EV purchase incentives better-designed than the federal tax credits they replace?

As the federal government pursues its quest to take the US auto industry back to the 20th century, California is moving ahead with various pro-electrification policies. Governor Newsom has signed a new law (SB 168) that establishes EV purchase incentives that are in some ways superior to the incentives that the federal government killed last year.

California’s MyFirstEV program, which is to begin “later this summer,” provides a discount of $3,500 off a new EV, or $1,750 off a used EV. With the discount, some consumers could buy entry-level EVs such as the Chevy Bolt and Nissan Leaf for under $30,000.

The $135 million for MyFirstEV (which will be matched by participating automakers) is part of “a $600-million investment in California’s affordable, clean-vehicle future, funded through Cap-and-Invest revenue and smog-abatement fees.” The full package also includes funding for the Air Quality Improvement Program (off-road equipment), the Clean Truck and Bus Voucher Incentive Project (HVIP), and the Carl Moyer Program (replacement of polluting heavy-duty engines).

California policymakers have studied criticisms of the two earlier rounds of federal EV purchase incentives, and have made some changes that we see as improvements.

The discounts are available only to first-time EV buyers. The idea is that it’s better to provide an incentive to convert new buyers to EVs than to subsidize those who are already on board.

The discounts will be applied to the vehicle price at the dealership. Unlike the bygone federal Clean Vehicle Credit, the new program doesn’t require buyers to file additional paperwork with their taxes, nor is there any household income ceiling. Instead, there’s a $50,000 price cap for new vehicles ($25k for used).

The price cap will be waived for EV-only automakers headquartered in California. As a practical matter, this means Rivian and Lucid. Tesla, which moved its headquarters to Texas in 2021 after its leadership objected to California’s COVID policies, will not qualify for the price-cap exception. Aww, what a shame…

Perhaps the most notable new feature of this program is the public/private funding component. Thirteen automakers (Ford, GM, Honda, Hyundai, Kia, Lucid, Mitsubishi, Nissan, Rivian, Subaru, Tesla, Toyota and Volvo) have agreed to match the state’s investment dollar for dollar, bringing total funding to $270 million. This feature delivers more bang for the taxpayers’ buck, and also provides welcome reassurance that the automakers are still interested in actually selling their EVs.

Former EPA exec and EV industry expert Margo Oge’s take: “When industry puts its own money behind a state initiative, that’s a market signal. The automakers aren’t doing this out of charity. Clean vehicles are [now] the mainstream, and companies are aligning their investments accordingly. The future of transportation isn’t waiting for federal permission. Now the question is: Which state is next?”

Source: Office of Governor Gavin Newsom, Car & Driver, USA Today