California's electric-car rebates jump for lower-income buyers and vanish for more high earners

This year, a number of automakers are set to roll out new electric car models. The Chevrolet Bolt is expected to be priced at $37,500.

By Rob Nikolewski

Oct. 31, 2016 11:55 AM PT

In an effort to boost the sale of low-emissions vehicles, California is again tweaking its rebate program for buyers of all-electric, plug-in hybrid and fuel-cell cars.

Starting Tuesday, high-income earners are excluded from getting the rebates and prospective buyers from lower-income households will get more money under the state’s Clean Vehicle Rebate Project.

California’s focus on income will not affect the substantial tax credits the federal government offers clean-car buyers.

The changes are designed to help reach aggressive goals set by Gov. Jerry Brown and the California Air Resources Board to vastly increase the number of zero-emission vehicles on the state’s highways.

But it’s unclear whether the changes will get the desired results.

“It may be too early to tell, but you look at the data and higher-income people are doing the buying as opposed to lower-income people,” said Jeremy Acevedo, pricing and industry analyst for Edmunds.com.

Rebate officials are more hopeful.

“We want to see different types of communities adopt these vehicles,” said Colin Santulli, senior manager of transportation at the Center for Sustainable Energy, the San Diego nonprofit that administers the state’s rebate program. “We hope to see a peer effect, a snowball effect that you see with so many other technologies.”

Here is how the new rebate system works:

People with household incomes less than or equal to 300% of the federal poverty level will receive $4,500 for buying or leasing battery-electric vehicles, $3,500 for plug-in hybrids and $7,000 for fuel-cell vehicles.

That’s a boost of $500 per category, and it’s up $2,000 compared with the rebates offered two years ago.

For an individual, 300% of the poverty level translates into gross income of $35,640 a year. For a family of four, it’s $72,900.

At the same time, the state is making it harder for high-income earners to qualify for the rebates.

After first establishing income caps that went into effect March 29, the latest round of changes toughens the restrictions even more.

The new rules will nix state rebates for those whose annual income exceeds $150,000 for single tax filers, $204,000 for head-of-household filers and $300,000 for joint filers. The caps don’t apply for hydrogen fuel-cell vehicles, though.

Previously the caps were $250,000 for single filers, $340,000 for head-of-household filers and $500,000 for joint filers. And as recently as the spring, there were no income caps at all.

This linkage of income to rebates was enacted by lawmakers in 2014 through Senate Bill 1275, which also outlined a host of programs designed to spur sales in low-income areas.

“A lot of these rebates were going to wealthy folks buying their Teslas,” said Joel Espino, legal counsel for the Greenlining Institute, a Berkeley-based nonprofit concentrating on racial and economic justice. “We wanted to preserve these dollars, understanding that they’re limited funds, and target them at folks who really need them the most.”

The particulars of the changes in rebates came from regulators at the California Air Resources Board. The money for the rebates comes from the state’s cap-and-trade program.

Gov. Brown wants 1.5 million zero-emission vehicles on California’s highways by 2025, the same year the Air Resources Board has mandated that vehicles that qualify under the state’s definition of zero-emission make up at least 15.4% of new vehicles sold in the state.

California has more zero-emission vehicles on the road than any other state, but they make up just 3% of new car sales in the state.

The changes to the rebate program raise questions for auto analysts such as Acevedo.

“Is $500 extra really incentive enough to get [lower-income] people who normally stayed out of this market?” he asked.

“Is the infrastructure in place for these lower-income buyers?” he added. “Are these folks homeowners where they can plug [zero-emission vehicles] into their garage every day? And from my own experience, if you stop at a retail area in a more affluent neighborhood, there’s a much higher propensity that there’s going to be a charging station at your local stores in wealthier ZIP Codes.”

But Espino said boosting the rebates for low-income buyers is only part of a larger strategy under the Charge Ahead California program to get more zero-emission vehicles in areas where they don’t have much presence.

In the Central Valley and the Los Angeles region, a “scrap and replace” program offers up to $9,500 in vouchers to low-income owners to trade in their emission-spewing clunkers for clean vehicles.

A financing-assistance pilot program has also been launched in the Bay Area, offering low-interest loans and “buy-down grants” for lower-income car buyers.

Espino said his group wants to see the regional programs expanded statewide.

“The boost we’re seeing with the [rebate program] for low-income folks is not intended to work on its own,” Espino said. “It will make sense in the context of how all of this works together.”

But reducing incentives for higher-income buyers also risks reducing demand for the cars.

“You wonder if by stripping away the rebates for the affluent individuals, is it a good idea to discourage anybody from buying these vehicles right now?” Acevedo said.

Polk, an auto industry market data firm, recently released statistics measuring the registrations for electric vehicles in California from January through August of this year. The share of buyers with income below $40,000 a year was 3.3%, while the share with income of $150,000 or more was 54.3%.

Espino said the new income cap of $150,000 for single filers should not depress zero-emission vehicle sales on the wealthier end of the spectrum.

“To us, it just makes sense that if you’re making more than $150,000, and given where the [prices] of EVs are now, you’re probably in a good place to afford it and not need the rebate.”

Later this year, a number of automakers are expected to roll out new electric car models that offer greater range per charge at lower prices.

The Chevrolet Bolt is expected to be priced at $37,500. Tesla plans to debut its Model 3, with a base price of $35,000, in late 2017.

Experts say they don’t know how previous rebate adjustments have affected overall sales of zero-emission cars.

The first round of changes went into effect March 29. Within weeks the rebate program was thrown into disarray. A legislative stalemate in Sacramento cut off funding temporarily and put buyers on a rebate waiting list.

The program’s money was replenished to the tune of $133 million in September, but the disruption “really throws off the ability for us to measure the effectiveness of the increased incentives [for lower-income buyers] as well as the effectiveness of the new income caps,” said Santulli of the Center for Sustainable Energy.

Espino said he “absolutely” believes that the rejiggered rebate program will work if it’s tied to other policy initiatives aimed at what his organization calls “electric-vehicle equity programs” that have seen funding from the state jump to $80 million, from $15 million.

“These cars save you a lot of money on gas and maintenance,” Espino said. “And who best to benefit from that than low-income folks, particularly when you consider the negative impacts of vehicle pollution in these communities.”

Acevedo had his own suggestion for boosting sales of zero-emission vehicles: expanding the program that gives drivers of clean cars stickers to drive in the HOV lanes without restrictions.

“I talked to one guy who has a Ford dealership, and he had some people come in and say, ‘Where can I get those stickers? What kind of car can I get here, I don’t care what it is, I just want the access to the HOV lane.’”

Changes to the Clean Vehicle Rebate Project

New guidelines, effective Nov. 1

No rebates for:

Single tax filers with gross income exceeding $150,000 a year

Head-of-household filers with gross income exceeding $204,000

Joint filers with gross income exceeding $300,000

Note: Income caps do not apply to buyers of hydrogen fuel-cell vehicles

Rebates for lower-income buyers:

$4,500 for battery-electric vehicles

$3,500 for plug-in hybrid electric vehicles

$7,000 for hydrogen fuel-cell vehicles

Note: To qualify as a lower-income buyer, gross annual income limit for an individual is $35,640; for a household of four, $72,900