White paper

Evolution of incentives to sustain the transition to a global electric vehicle fleet

This report assesses near-term electric vehicle market trends to inform on how governments might optimally evolve their electric vehicle incentive programs to sustain market growth. We analyze prevailing per-vehicle purchasing incentives and how government outlays increase to maintain these incentives as the market grows. Then we assess how electric vehicle costs—for varying electric range—are reduced in the approximate time frame of 2020–2025 due to increased battery production. From these cost reductions, we analyze when the consumer proposition might tip in favor of electric vehicles, based on the first-owner cost of operation for seven major electric vehicle markets in North America, Europe, and Asia.

Based on the analysis, the authors conclude –

  1. The electric vehicle range and cost improvements will greatly expand the electric vehicle market and reduce the need for incentives. Due largely to battery innovation and manufacturing scale, higher-range electric vehicle costs will be reduced by greater than $10,000 in the 2017–2022 time period.
  2. Incentives would ideally shift to target vehicles with the greatest mainstream consumer attractiveness. Namely incentive programs could shift eligibility criteria to lower cost and higher range electric vehicles.
  3. Incentive instruments would ideally be adopted for greater financial durability. Shifting to progressive tax exemption, polluter-pay systems (e.g., Norway), or “feebate” systems (e.g., France) could better lock in a revenue source for the electric vehicle incentives.
  4. As fiscal incentives phase down, more policy action is still needed for electric drive. Charging infrastructure, consumer education and awareness campaigns, fuel efficiency regulations will become keys to drive the transition to mass-market electric vehicles.