Tax Credit for Plug-In Hybrids, the Early Version ~ Hybrid Car Review
Hybrid Car Review: Tax Credit for Plug-In Hybrids, the Early Version

Friday, September 19, 2008

Tax Credit for Plug-In Hybrids, the Early Version

On Tuesday, the House passed a bill (the Off-Shore Drilling Bill) that includes a provision to provide tax breaks for plug-in hybrids vehicles. From the reports I've seen, the bill is unlikely to pass the Senate this year. There is little reason to believe the Senate would look askance at a tax break for plug-in hybrid electric vehicles, but it probably won't pass for other reasons.

If it were to pass, the tax credit is based on the kilowatt hour of the battery pack. There is a base credit of $3,000 and for every kilowatt hour over 5, it will go up $200 to a maximum of $5,000. Since the Volt is supposed to have a 16 kWh battery pack, that means it would qualify for the full $5,000.  The tax credits could reach as much as $7500 for light-duty vehicles.

Like the current federal tax credit for hybrid cars, there is a phase out involved. After the first 60,000 are sold by an automaker, the credit would be halved for the next two quarters and then halved again for the next two quarters. After that it would end.

The Tesla Roadster would qualify for the tax credit, while the current Toyota Prius would not (the Prius has a smaller battery pack).

It's unclear to me why they picked a base of 5 kWh for battery packs. But I can think of at least one possibility.  Today's hybrids already have a tax credit.  Imagine if they passed a new tax credit that would apply to them.  Suddenly Toyota and Honda hybrids would be eligible again.

But then, what happens if Toyota comes out with a plug-in Prius that has a 4.5 kWh battery pack? Would that be fair to those who prefer the Prius? While it may seem unlikely that any plug-in hybrid car would come in that low, perhaps the manufacturer wants a car that can travel 10 miles on all electric power before switching to the gas engine. That would require a much smaller battery than needed in the Volt.

But, an all electric car would need a larger battery pack (the Roadster battery pack is rated over 50kWh, for instance), otherwise it wouldn't have the range to compete with gas vehicles.  So, perhaps tying the credit to the size of the battery pack isn't necessarily a bad thing since it will encourage electric vehicles.  Although, when it comes to plug-ins, it almost seems like Congress wants to encourage manufacturers to use bigger batteries, even if they aren't necessary.

Read more on the tax credit for plug-in hybrids at Detroit News, US News, WSJ, Autobloggreen, and KickingTires.

In other tax break news, several Mercedes-Benz models have been deemed eligible for tax credits.  The ML 320 BlueTEC, R 320 BlueTEC and GL 320 BlueTEC have all been certified by the IRS to meet the 50-state strict emission requirements.  Those who buy a ML 320 BlueTEC may get a $900 federal tax credit, while the R320 can get $1,550 and the GL 320 BlueTEC makes you eligible for up to $1,800 in tax credit.  You may or may not qualify for the federal tax credit.

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