From the Sigma Investment Counselors blog.
Governments utilize a variety of incentives intended to direct economic activity in politically motivated directions. Investors need to be aware of the effect of incentives on investment opportunities and, most important, recognize that what the government gives, the government can withdraw.
For example, electric vehicles have been widely acclaimed as an opportunity to reduce the environmental consequences associated with fossil fuels. A significant cross section of governments, including national, state and local, have created a network of incentives designed to encourage the purchase of EVs.
In the U.S., purchasers of EVs are eligible for a $7,500 federal income tax credit plus additional incentives, including cash and special driving privileges, in some states. However, the federal incentive is limited to a manufacturer’s first 200,000 vehicles.
Hong Kong has been offering tax incentives to purchasers of EVs that reduced the price of a Tesla Model S from approximately $130,000 to less than $75,000. This incentive expired on March 31, immediately prior to which Tesla sales soared and then went to zero in April.
In Denmark, EV incentives expired last year and were replaced by a less generous plan. EV sales decreased 70 percent in 2016.
Elsewhere in Europe, Norway offers very generous EV incentives, including an exemption from paying bridge, tunnel and highway tolls. As a result, Norway is a major market for EVs and the reduction in toll collections has put some infrastructure financing in jeopardy.
Another area for investor vigilance is the residential solar panel industry. Currently, a number of states offer substantial incentives for the installation of residential solar panels. These incentives typically reduce costs for the panel owners and increase costs for electric utility customers that don’t have solar panels. This is, for obvious reasons, very controversial.
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