America’s highways and bridges rely on taxes collected on gas for their upkeep. But as electric vehicle sales take off, lawmakers are worrying that the substantial revenue stream, used to maintain our deteriorating infrastructure, is slowly dwindling. Policymakers are now finding ways to make up for this deficit, but one of those solutions could hinder EV adoption if not executed properly.
This sets in motion today’s edition of Critical Materials, your daily digest of news and events shaping up the world of electric cars. Also on today’s agenda: Texas is suing General Motors for collecting driver data and selling that to insurance companies without consent and Polestar escapes U.S. tariffs by starting production of the Polestar 3 in South Carolina.
30%: Tax Revenue From Gas Is Declining. Lawmakers Blame EVs
Going electric will pay big dividends in the future for climate and public health. But that also means the U.S. is staring at a massive budgetary deficit—about $80 billion in annual federal and state revenue combined, according to Politico—in the future as taxes collected on gas and diesel sales continue to decline.
These funds help build and maintain America’s extensive highway, bridge and transit network. The American Road And Transportation Builders Association said last year that one out of every three bridges in the U.S. still needs repair or replacement, although the overall condition of bridges nationwide is slowly improving.
California, where EV adoption is further along than in any other U.S. state, could bear the brunt of this possibility before others. According to California’s Legislative Analyst’s Office, the state is expecting a revenue decline of $5 billion (64%) from its gasoline excise tax, $290 million (20%) from the diesel excise tax and $420 million (20%) from its diesel sales tax next decade. The state already charges EVs an annual fee of $118, but that may not be enough to make up for the tax revenue decline.
Here’s more from Politico on how this is a national problem:
The revenue generated from those taxes steadily increased as car ownership exploded, but transportation experts say it has been apparent since the 1970s that increased vehicle fuel efficiency would eventually shift that curve downward.
Most states are still trying to raise gas taxes more or raise fees on EV owners. Nearly three dozen states have approved gas tax increases and additional fees specifically for EV owners over the last decade to offset revenue shortfalls — but not at high enough levels to reverse long-term declines as more drivers skip the pump.
One way to save money, according to officials in Oregon and Utah, is to use vehicles’ existing GPS and diagnostic systems to measure mileage, rather than installing additional state-approved devices.
The key to getting auto companies on board with sharing that information is likely widespread adoption and pressure from states or a federal road-user program. State lawmakers shouldn’t expect help from Congress any time soon.
Messaging would be critical in rolling out a potential pay-per-mile fee on EVs in the future, something that policymakers are considering. Although EVs are quickly approaching price parity with gas cars, the high upfront cost of buying them is one of the biggest hurdles in their broader adoption. If states say they’re imposing “additional taxes” and not “replacement taxes,” it would harm the EV movement.
Experts also believe it’s unfair to single out EVs as the cause for declining gas tax revenue, which has been in a free fall for decades as more fuel efficient cars, including hybrids, have grown in popularity. Others argue that EVs are scapegoats in this battle and imposing taxes on them would only benefit the oil and gas industry.
Either way, the road to electrification is long and arduous. Lawmakers will likely have time to negotiate a meaningful way to bridge this gap without diminishing the benefits of EVs on public health and the climate.
60%: Texas Sues GM For Collecting Driver Data Without Consent
The battle between automakers and states accusing them of selling driver data to insurers is heating up. Texas has accused GM of installing devices on 14 million cars to collect driver data, which it then allegedly sold to insurance companies. Drivers had no clue what was happening, the state argues.
Here’s more from Reuters:
...GM's practice was for dealers to subject unwitting consumers who had just completed the stressful buying and leasing process into believing that enrolling in its OnStar diagnostic products, which collected the data, was mandatory.
"Companies are using invasive technology to violate the rights of our citizens in unthinkable ways," Texas Attorney General Ken Paxton said in a statement. "Our investigation revealed that General Motors has engaged in egregious business practices that violated Texans' privacy and broke the law. We will hold them accountable."
There have been multiple investigations regarding automakers selling the so-called “driver score” to insurance companies, who then determine your insurance premium. You’d be surprised, but data brokers and car companies probably know more about how you drive than your friends or family do. They know when you speed, they know your braking patterns, distance driven and a lot more.
Automakers argue that these are voluntary opt-in programs. But buyers often have no idea what they’re opting-in for and the conditions and disclaimers are hidden in complex and often painfully long literature. There was a scathing NYT report early this year on how this egregious practice works.
90%: The First U.S.-Made Polestar
Polestar has started manufacturing the Polestar 3 electric SUV at Volvo’s Ridgeville, South Carolina plant. The move will help the struggling automaker avoid strict tariffs on Chinese-made cars. Initial production of the model started at parent company Geely’s factory in Chengdu, China, but automaker told Reuters that bulk of the Polestar 3’s global production would be now from the U.S.
The model is offered in two trims in the U.S., Dual Motor and Dual Motor with Performance Pack. The former starts at $73,400, has an estimated 315 miles of EPA range and can sprint to 60 miles per hour in 4.8 seconds thanks to dual electric motors that produce 489 horsepower. The latter is about $6,000 more expensive, has a lower 279 miles of EPA range but is faster to 60 mph by 0.3 seconds.
100%: How Can EVs Be Taxed Fairly?
Buyers already pay registration fees and sales taxes on their EVs. Plus, there are highway tolls. But to continue building and maintaining America’s vast road network, EVs may have to pay a small fee down the line. What roles can lawmakers, energy providers and automakers play to ensure that these taxes don’t feel like a burden? Leave your thoughts in the comments.
Contact the author: suvrat.kothari@insideevs.com
