As the new year gets under way, more U.S. drivers are getting behind the wheels of hybrid and electric cars than ever before. And why shouldn't they? As it stands, EV owners qualify for hybrid and electric vehicle perks, such as tax credits, free parking, and unlimited access to high occupancy vehicle lanes. However, new legislation may act as a disincentive to EV adoption.
Pulling the plug
In the not-too-distant future, state governments may impose a special tax for drivers of fuel-efficient cars. Some argue this is hypocritical of lawmakers. One moment you're rewarded for buying a plug-in vehicle and the next you're slapped with a new tax.
In fact, as soon as next month, electric vehicle drivers in the state of Washington will be forced to pay a tax of $100 per year, per EV owned. This is the first degree of what many states are considering a new excise known as vehicle miles traveled tax, or VMT. In the future, it's likely that all U.S. drivers would be required to pay a VMT tax in one form or another.
Getting down to the heart of the matter: The VMT tariff is a direct result of falling fuel revenues. You see, as cars and trucks become more fuel-efficient Americans spend less on gas. This means that states are bringing in less revenue from gas taxes. Going forward, some states hope to make up these losses by implementing new legislation that would charge drivers per miles driven.
One of the major problems of the proposed VMT tax is that it works against this country's current efforts toward becoming more energy independent. Specifically, taxing all electric cars to compensate for dwindling gas taxes acts as yet another roadblock for widespread EV adoption.
Some think a better solution would be if states simply increased the tax applied to gas. As it stands, the U.S. imposes the lowest taxes on fuel of the industrialized nations. Though those people driving gas-guzzlers would likely disagree. That's because U.S. drivers currently pay more than $0.18 per gallon to the federal government in fuel taxes in addition to variable state gas taxes.
Another contradiction to this new tax is that fact that carmakers are being pushed to offer more hybrid and electric cars, albeit at a loss. Specifically, major autos including Ford (NYSE:F) and GM (NYSE:GM) are under pressure to produce more EVs as a result of new fuel-efficiency rules that were recently put in place by the Obama administration.
The Wall Street Journal reports that "by 2025, car makers' vehicle fleets must average 54.5 miles on a gallon of gasoline, a goal that can be achieved in part by offering more electric cars." Unfortunately, a new tax on these vehicles could make it harder for these companies to sell them. Up to this point, EV and hybrid sales in the U.S. have been steadily gaining momentum.
GM recently touted its achievement of becoming the first American car company to sell more than one million cars with an EPA fuel economy rating of 30 mpg in highway driving. New electric models from companies such as BMW, Ford, and Tesla Motors (NASDAQ:TSLA) are also generating speed.
In fact, Tesla's Model S zero-emission sedan made history recently after being crowned Motor Trend's "Car of the Year." The much-deserved accolade marks the first time in its 64-year history that Motor Trend has awarded "Car of the Year" to an electric vehicle. Ford has also seen growing demand for its cars with high fuel economy ratings. According to Forbes, Ford's new C-Max hybrid is one of the 10 hardest cars to find this year, as inventory is quick to sell out.
For the time being, many of the details surrounding the VMT tax remain unclear. While we will have to wait and see how taxing these cars will affect future sales figures, it's not likely that these changes will happen overnight. Still, investors should keep an eye on automakers as they work to adapt to new industrywide legislation.
Ford, for example, has been performing incredibly well as a company over the past few years despite industry changes -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt.