Can Obama's Proposed $7,500 Rebate Accelerate Electric-Car Sales?

Would a rebate -- instead of a tax credit -- help automakers meet the goal of 1 million electric cars on the road by 2015?
Would a rebate -- instead of a tax credit -- help automakers meet the goal of 1 million electric cars on the road by 2015?

Electric cars such as the Nissan Leaf and Chevy Volt have gotten a lot of attention for their novel and eco-friendly engineering. But will we see 1 million of electric cars on the road by 2015, a goal President Obama highlighted by during his State of the Union address last month?

The U.S. Department of Energy (DOE) issued a report Tuesday to convince the public that the goal is doable. According to the report, the government already has invested heavily in electric transportation in the past two years and has toughened fuel-economy standards to push automakers to develop electric cars. President Obama also plans to ask Congress to fund several programs aimed at boosting consumer demand.

One of the proposals is to turn an existing $7,500 electric-vehicle tax credit into a rebate. This idea, which DOE officials compare to the popular Cash for Clunkers program, would allow consumers to claim the incentive when they buy the cars, rather than waiting to claim it when they file their income taxes.

"There is an enormous enthusiasm domestically and around the world" for electric cars, David Sandalow, the assistant secretary for policy and international affairs at the DOE, said during a conference call with reporters Tuesday. "This is a real opportunity for the American industry and workers to position the industry for the future."

Keeping It Clean

The electric cars that the administration wants to see on the road include both plug-in hybrids, which run on electricity and gasoline, and "all-electric" models powered entirely by electricity. Plug-in hybrids' tailpipes emit less pollution than their all-gasoline counterparts, while all-electric cars produce no tailpipe emissions. And because these cars use little -- or no -- gasoline, more electric cars also would reduce the country's reliance on oil, a goal that many U.S. presidents have reiterated over the decades.

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But electric cars also have plenty of speed bumps to navigate on the road to 1 million. For one thing, electric vehicles are expensive, primarily because of the cost of the batteries and because the cars are still being produced in small volumes. (Because of what's called the "economies of scale," prices tend to come down when volumes grow.)

General Motors's Chevy Volt, for example, has a sticker price around$40,280 (before any federal or state incentives), while the Nissan Leaf starts at $32,780. Buyers can claim a federal tax credit of up to $7,500, bringing the prices as low as $33,500 for the Volt or $25,280 for the Leaf. In comparison, the Toyota Prius, a regular hybrid that doesn't plug into a wall socket, starts at around $23,000.

And automakers are a long way away from selling 1 million electric cars. Nissan and General Motors only launched their electric cars late last year, after all, selling 106 Leafs and 650 Volts by the end of January. But car companies are ramping up: Nissan has taken reservations for about 20,000 Leafs -- and yesterday it said it plans to boost its production to "thousands" per month to meet demand -- while GM expects to sell some 10,000 Volts this year.

A Long Way to Go

These numbers would still make electric cars a tiny sliver of the annual auto market. But those car makers, along with others, do plan to accelerate their production enough -- over the next several years -- to produce 1 million electric cars from 2011 through 2015, the DOE says. The new report includes a table that lists the announced production plans from GM, Ford, Tesla Motors, Nissan, Fisker Automotive and Think. Other carmakers, such as Toyota, Chrysler, Honda and BYD, also plan to launch electric vehicles by 2015, the report notes.

The State of the Union wasn't the first time Obama has addressed electric cars. Back in 2008, before he took office, Obama said he wanted to work to get "advanced technology vehicles" on the road by 2015. And the stimulus package in 2009 included a lot of programs to promote electric car research, production and deployment.

The stimulus, called the American Recovery and Reinvestment Act, provided $2.4 billion in loans to build three electric-car factories in the past two years. It also allocated $2 billion in grants to make batteries, motors and other components in 30 factories. The government wants to see these new factories crank out 50,000 car batteries this year and 500,000 batteries annually by the end of 2014.

The stimulus package also included $400 million to install charging stations and to carry out electric-car field trials, both to collect data about driving experiences and electric cars' impact on the electric grid. Utilities are particularly interested to know if they will have to adjust their power supply at certain times of the day to meet demand from electric-car charging.

Will Congress Come Along for the Ride?

Fuel-economy standards that the administration put in place in 2009 also will prompt carmakers to focus more on developing electric cars, Sandalow says. The standards require carmakers to gradually improve the fuel efficiency of their cars through 2016. The government is now looking at regulations that extend beyond 2016 too.

"It reminds me of a famous saying from Wayne Gretzky: You skate to where the puck is going. In this industry, it means investing in advanced technologies, particularly electric vehicles," Sandalow says. "It already is making a huge difference in creating thousands of jobs around the country."

Aside from creating a $7,500 rebate for buying electric cars, Obama wants to give 30 communities grants of $10 million each to work on measures to promote electric cars, such as parking incentives. The president also wants more money for research and development of electric car-related technologies, although he hasn't revealed how much he will be asking for.

All of these ideas will require funding from Congress, however. Whether the president can get what he wants from lawmakers, particularly Republicans who have vowed to cut spending, remains a big question.