Proposed electric vehicle tax credit will either surge or die in coming days

Feb. 3—A proposed tax credit designed to make electric vehicles more affordable and give a jolt to New Mexico's clean car transition is heading toward a critical juncture in this year's legislative session.

The EV credit will be part of the legislative tax package, which the House Taxation and Revenue Committee is expected to review this week. Members can vote to modify it, leave it as is or remove it from the package.

The tax credit would be the final spoke in a wheel proponents say is essential to making electrification happen in New Mexico. The other two are a statewide network of EV charging stations and an ample supply of the vehicles for people to buy.

Buyers would receive a $3,000 tax credit on new EVs, $1,500 for used ones and $2,000 for new hybrid cars from 2024 through 2026. Used hybrid buyers can get $1,000 credit during that period.

The credit would decrease in the following three years because EV prices are expected to fall as more of the vehicles become available. It would sunset at the end of 2029.

At a hearing last week, committee members gave criticisms and suggestions. They also heard from supporters and opponents.

One electrification advocate told the committee the region was about to undergo a transformation from gasoline vehicles to EVs, and the tax credit will put the foot on the pedal.

"To accelerate the needed adoption rate to EVs ... this tax credit is needed," said Jim DesJardins, executive director of the Renewable Energy Industries Association of New Mexico. "We especially appreciate how this tax credit applies to used vehicles."

EV supporters say having more used electric cars available will make them more affordable and appealing to the average consumer, a key to growing the market.

As the state looks to entice people to buy EVs, it is investing in the infrastructure to accommodate the vehicles.

State transportation officials aim to spend more than $170 million in state and federal money installing roadside chargers across New Mexico, which would include $55 million they're asking the Legislature to approve this session.

At the same time, the Advanced Clean Cars and Trucks rule adopted last year will require carmakers to bring tens of thousands more EVs to the state in the near future.

The rule calls for 43% of new cars and light-duty trucks delivered to New Mexico to be electric models by 2026 and 82% by 2032.

Also, 15% to 20% of new, heavier-duty commercial trucks delivered to the state must be electric by 2026, and 40% to 70% must be zero emissions by 2034, depending on their class.

The tax credit per vehicle will drop over time, partly because EVs are expected to achieve price parity with gasoline models and also because more people are expected to buy the vehicles while the state's pot of money for the credits remains roughly the same.

Luring buyers, not forcing sellers

The state expects to have $27 million in fiscal year 2025 to fund the credits, $41 million the second year and at least $45 million a year after that, according to a fiscal impact report.

Officials described the tax credit as a "cash-on-the-hood" discount. The buyers would use it to shave the EV's sale price, and the dealers would handle most of the paperwork and the tax filings.

The proposed credit has drawn support from automotive and business groups that opposed the clean car rule, saying it encourages consumers to buy rather than pushing dealers to sell.

"This bill creates an incentive for positive change rather than directing policy change through a mandate," said J.D. Bullington, a lobbyist for the Greater Albuquerque Chamber of Commerce.

Gov. Michelle Lujan Grisham spearheaded the EV tax credit after vetoing last year's proposed credit.

The previous version would've given a $2,500 tax credit to EV buyers whose income was more than twice the federal poverty level and $4,000 to those whose earnings fell below that threshold. The yearly cap on state funding for that program would have been $10 million.

The governor later said she vetoed the bill because she thought the program was "way too small."

EV prices remain one of the biggest sticking points.

Subsidizing EVs will be necessary until the market can get established through greater supply of new and used vehicles, at which point the prices will come down, state Taxation and Revenue Cabinet Secretary Stephanie Schardin Clarke said at the hearing.

Tom Solomon, co-coordinator for 350 New Mexico, a climate advocacy group, agreed with her, saying EV prices now are substantially higher than internal-combustion cars.

"While electric vehicles are great, they are not quite in reach to the average New Mexican in terms of price, and this bill ... accomplishes the objective of making it easier for normal New Mexicans to buy them," Solomon said.

Benefits debated

Republican lawmakers, especially those whose districts are in the oil patch, opposed the tax credit, arguing it would throw more public money at vehicles with low consumer demand. They echoed the criticisms of those who have opposed government efforts to amp up the EV transition.

Rep. Larry Scott, R-Hobbs, said he doesn't think his constituents, who live mostly in rural areas, could take advantage of the credits because they tend to buy pickup trucks and drive them long distances.

"Out in the middle of nowhere, there is never going to be a charging station," Scott said, which makes EVs impractical in rural communities, no matter how much they're subsidized.

Rep. Mark Duncan, R-Farmington, expressed similar concerns about rural areas potentially being left out.

"I call this the I-25 bill," Duncan said, because it mainly will benefit those in urban corridors.

Rep. Dayan Hochman-Vigil, D-Albuquerque, one of the bill's sponsors, said she understands "range anxiety," the term for feeling insecure an EV might run out of juice with no place to recharge.

But the state is installing hundreds of charging stations throughout New Mexico, including in out-of-the-way rural areas where people might not expect to encounter one, Hochman-Vigil said. That network will expand as the market matures, she added.

"It's going to be the same type of revolution we saw with gasoline vehicles," she said. "It's just simple economics. At one point, a gas station was put in a rural community because there needed to be one there."

In addition to this, people can charge the vehicles at home, enabling them to drive a couple hundred miles, she said.

Scott remained skeptical. EVs have been around for more than a decade, and yet they make up only about 2% of the cars sold in New Mexico.

"If there is a compelling reason to own one, I believe the adoption rate would be much, much larger than 2%," Scott said. "You have to pay people to buy them."

But in an interview before the hearing, an EV proponent said the tax credit will help get buyers over the initial financial hump.

After that, they'll enjoy significant savings because EVs require fewer repairs and less maintenance, and electricity is much cheaper overall than gasoline, said Camilla Feibelman, director of the Sierra Club's Rio Grande Chapter.

Feibelman said if buyers were to combine the proposed state tax with the federal EV tax credit — up to $7,500 — they could get an EV at a price that's not too much higher than a gasoline car.

The tax credits along with all the other investments the state is making will speed the EV market's growth, Feibelman said, which will be good for consumers, the climate and public health.

Passing a rule to compel carmakers to boost EV supply was a key step in the clean car transition, Feibelman said, adding the tax credit "incentivizes the consumer to actually buy the cars."

Still, Rep. Christine Chandler, D-Los Alamos, criticized the tax credit for not being tiered so lower-income people receive a larger sum. That's the way to achieve strong market penetration in a state where most of the residents have modest incomes, Chandler said.

Schardin Clarke said factoring in income would greatly complicate the process and create potential snags both for state agencies and car dealers. It's best to keep the system as simple as possible, she said.

The proposal isn't perfect, Hochman-Vigil said, but it's something to build on.

"This is just the first phase or the beginning of this program," she said.