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As readers of our bulletins know, Maryland is in the midst of transitioning to electric powered vehicles. Starting in 2025, manufacturers will be required to meet certain quotas for percentage of new car sales that rely upon electric motors and batteries, instead of gasoline or diesel engines. By 2035, the sale of new gasoline powered vehicles will be banned. For more details on the laws behind these new regulations, see: California (Cars) Here We Come | Gordon Feinblatt LLC (gfrlaw.com) and California (Cars) Here We Come (Part II) | Gordon Feinblatt LLC (gfrlaw.com).

The purpose of this article is to provide advice tailored to those considering the purchase of an electric vehicle in the Maryland marketplace.  Despite the new mandates, fossil fueled vehicles will remain a viable choice for many years to come so new buyers will have a choice. The mandates phase in over time and, in any case, the sale of used fossil fuel vehicles is not yet banned. Given that the average new car remains on the road for 15 years, there will be fossil fueled vehicles available well into the late 2040s and perhaps 2050s.  However, there are distinct advantages (and some disadvantages) to switching to an electric powered vehicle.

Acronyms

First, some acronyms that might prove useful. Most vehicles on the road today are fueled entirely by gasoline or diesel (fossil fuel) engines.  However, there are vehicles that are part of a transition away from these fossil fuels. HEVs are hybrid electric vehicles that use an electric motor to assist the primary gas-powered engine. Typically, HEVs are referred to as hybrids, the original Toyota Prius is the most obvious example. An HEV charges a battery for the electric motor while burning gasoline, meaning it has two engines, an electric and a gasoline engine.

A Plug in Hybrid Electric Vehicle (PHEV) is very similar to an HEV, but the battery can also be charged, as the name suggests, by plugging the vehicle into to a source of electricity. PHEVs typically have larger batteries compared to HEVs and a longer electric motor range. Toyota, Volvo, and BMW are examples of brands that build PHEVs. The mandates for transition to electric vehicles allow manufacturers to count PHEV sales towards a portion of the quota during the early years of the transition.

A BEV is a battery electric vehicle that is fully powered by an electric motor and lacks a gas engine. Tesla is the most obvious example of a BEV.  Another term you may see is ZEV or zero emission vehicle. ZEV includes both battery-powered vehicles and vehicles powered by hydrogen fuel cells. Toyota, Hyundai and Honda have each produced a hydrogen fueled car, but sales have been few, and most commentators believe that BEVs will dominate the passenger vehicle market.

Climate and the Economy

Fossil fuel used in transportation is the largest source, by far, of greenhouse gas emissions in the state of Maryland. According to the 2020 inventory by the Maryland Department of Environment, on-road gasoline and diesel vehicles emit 24.3 million metric tons of greenhouses gases in the state. For comparison, coal burning power plants only contribute 3.9 (and are scheduled to close), industrial processes emit 7.3 and agriculture produces 3.1.

It is true that the production of batteries for BEVs requires the mining of materials and greenhouses gases are produced during the manufacturing process. However, scientific studies have confirmed that an electric vehicle will, over the lifetime of the vehicle, have far less impact on the environment than a fossil fueled or hybrid vehicle even when charged from power plants that burn fossil fuels. As the economy transitions to “clean” energy (solar, wind, nuclear and hydroelectric), the differences will grow even greater.

Of course, mining the materials for batteries will always have an environmental impact but most neutral researchers believe that the mining, extraction, and distribution of fossil fuels has a greater environmental impact.

A related concern is that, currently, many of the minerals required for battery production must be imported from overseas, in particular, China. This clearly is an economic and national security concern and could lead to the US becoming more dependent on imports for a vital part of the economy.

However, there is reason to believe that this situation may improve. Several manufacturers are starting to convert from batteries dependent on nickel and cobalt to lithium iron phosphate (LHP) compositions. LHP batteries may not require imported materials. In addition, the Inflation Reduction Act is providing incentives for manufacturers to relocate mining and battery production to the US. Nevertheless, this issue will remain a significant concern, at least for the short term.

Availability of Affordable Electric Vehicles

Except for the ubiquitous Tesla models 3 and Y, electric vehicles are rare on new car lots and even rarer on used car lots. However, that situation appears to be changing rapidly. The Tesla Model Y was the second highest selling vehicle in the first quarter of 2023, exceeded only by the Ford F-150 pickup.

Manufacturer projections are even more ambitious. Most manufacturers have announced BEV sales targets of 50% or higher by 2030. Only Toyota and Mazda were projecting sales of 30% or lower – and Toyota recently announced that it will be pivoting from HEVs to BEVs and will introduce no less than 10 electric vehicles by 2026.

Even without these plans, the market is going to dictate increased production of BEVs. Seventeen states have banned sales of fossil fueled passenger vehicles by 2035. The European Union adopted a similar provision (though some member states are seeking a repeal). Some European cities, such as Paris, have adopted even earlier deadlines. Manufacturers will need to produce enough new vehicles to meet these demands.

The bottom line is that there may be a shortage of non-Tesla vehicles in the short-term, but the situation will soon change. However, that raises a related question.  Will the BEVs be affordable?

Currently, most BEVs are more expensive than the fossil fueled equivalents. Part of the difference is that many (but not all manufacturers) have concentrated on the luxury end of the market. For example, GM has announced that it plans to discontinue the production of the very affordable Bolt in order to devote the battery manufacturing capacity to more expensive vehicles.

Most of the difference in cost is in the cost of producing large, lithium based, batteries. The components of those batteries are, at least currently, much more expensive than the components of gasoline engines. However, multiple studies have predicted declines in battery costs as economies of scale take effect and manufacturing technology improves. Many studies predict price parity by 2030 or so.

Arguably, some models are reached price parity now. Car and Driver© magazine estimates that the average cost of a new car in 2023 is just over $48,000. The price of a base Tesla Model 3 has varied over time but is currently just over $40,000. A Ford Mustang SUV starts at just under $47,000. Hyundai, Volkswagen and Chevy all have BEVs priced below the average cost of a new car. To some extent the comparisons are unfair since the average cost of a new car includes many luxury models while the BEV examples described earlier are not usually considered luxury models. Nevertheless, it is clear that a BEV can be acquired at less than the average cost of a fossil fueled vehicle.

Moreover, any comparison of acquisition cost must take into account the tax incentives available to at least some potential buyers.

Financial Incentives

The Inflation Reduction Act (Public Law 117-169) (the Act) included very generous incentives for PHEVs, BEVs and fuel cell vehicles. The credits can be as high as $7,500 though some vehicles will only qualify for a credit of $3,750. So, for example, the tax credit on a base Tesla Model 3 would reduce the current cost from $40,000 down to $32,500.

To qualify for the federal incentive, the buyer must be below an income threshold based on the modified adjusted gross income (AGI) for the year you take delivery or the year prior to delivery. The threshold is $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for all other buyers.

It is important to note that not all ZEVs qualify. The Act requires the vehicle to meet stringent requirements including final assembly in the United States and critical mineral and battery component restrictions. The manufacturer suggested retail price also cannot exceed $80,000 for an SUV or truck or $55,000 for a passenger car.

The list of vehicles that qualify for the credit has varied over time as manufacturers adjust their supply lines and assembly locations to maximize access to the tax credits. Potential buyers should check the lists maintained by the Department of Energy (DoE) to confirm qualifications. (Alternative Fuels Data Center: Electric Vehicles with Final Assembly in North America (energy.gov)). However, currently, versions of the Tesla Model 3 and Y, the Cadillac Lyriq, the Chevy Bolt, Blazer, Equinox, and Silverado, the Ford F-150 and the Volkswagen ID.4 qualify for the full credit. Versions of several other models qualify for a half credit: the Ford Mustang, the Ford E-Transit, and the Rivian truck all qualify for the $3,750 credit.

A number of PHEVs also qualify for credits. The Chrysler Pacifica PHEV and the Lincoln Navigator PHEV currently qualify for a full $7,500 credit. Other BMW, Ford and Jeep PHEV models qualify for partial credits.

There are also credits available for the purchase of used ZEVs, but the price must be below $25,000 and the income thresholds are half of the thresholds for new vehicles. Currently there are relatively few used ZEVs on the market.

It is worth noting that, under current interpretations, vehicles bought and then leased to other individuals are exempt from most of the restrictions since they are considered commercial transactions. Income restrictions and the limited list of qualifying vehicles can be bypassed.

In addition to the federal incentives, Maryland offers some, limited, incentives as well.

First, Maryland offers an excise tax credit of up to $3,000 for BEVs and fuel cell vehicles. Funding for the credit is limited and on a first-come, first-served basis starting each fiscal year (July 1st), so it would be wise to check with the Maryland Energy Administration to determine if funding is still available. The credit is only for new vehicles with a base price of $50,000 or less.

Putting the federal and state credits together, a qualifying buyer could reduce the cost of a new BEV by $10,500. That would reduce the current cost of the base Tesla model 3 to below $30,000.  A Chevy Bolt would be around $10,000.

Maryland also offers a rebate of 40% of the cost of electric vehicle charging equipment up to $700 ($4,000 for businesses and $5,000 for service stations). Once again, the funding is limited, and the money may run out late in a fiscal year. There is also a federal tax credit of up to 40% (or $1,000) for charging equipment.

Finally, some electric utilities offer additional rebates. BGE, for example, offers an annual $50 bill credit and special “time of use” electric rates for BEV owners. PEPCO has a similar program.

For buyers who qualify, the cumulative savings can erase the additional cost of an electric vehicle.

Operating costs

Comparing operating costs of a fossil fuel and electric vehicle is difficult because there are so many variables. The cost of electricity and the cost of gasoline are obvious variables. Mileage driven also plays a large role since the cheaper cost of electricity offsets a larger acquisition cost if the vehicle accumulates significant mileage.  On the other hand, electric vehicles require far less maintenance (e.g.: no oil changes, no transmission, no fan belts, etc.). The other problem is that there are few vehicles that are directly comparable. Should a Tesla Model 3 be compared to a Camry?
 
Car & Driver© tried to estimate the cost differential in an October 2022 article. They estimated that, over three years, the cost differential depended on the vehicles selected for comparison but was almost certainly cheaper if incentives were included. EV vs. Gas: Which Cars Are Cheaper to Own? (caranddriver.com).

It should be noted that the price of BEVs have declined significantly since October 2022 and the cost of gasoline has increased, so the advantages for BEVs has probably increased since the previous article by Car & Driver© magazine was published. The same Car & Driver study also looked only at federal incentives, not state. On the other hand, one of the largest costs for both electric and fossil fuel vehicles was depreciation.  It is reasonable to assume that depreciation costs for electric vehicles have increased as the price of new BEVs has declined.

Eventually an electric battery wears out – just as a gasoline engine may need to be rebuilt – but replacing a battery is very expensive.  However, the quality of batteries has improved significantly. Tesla, as an example, has data indicating that their batteries will retain about 90 percent of capacity after 200,000 miles. Some sources suggest that the newer batteries could last between 300,000 and 500,000 miles but there is little data available to support those estimates.

As a general conclusion, and excluding depreciation, you should expect operating costs to be much cheaper in a BEV but, as the saying goes, your mileage may vary.

Range

In my office I have a New Yorker cartoon where an owner of an electric vehicle points out the question that every owner is always asked.  What is the range of your electric car?  “Range anxiety” – the risk that your battery will run out before you reach a charging station – is a real thing.  The good news is that the range of BEVs is increasing. Some of the latest, luxury, BEVs have a range of between 400 and 500 miles.  A long-range Tesla Model Y is rated at about 330 miles. A base Model 3 is rated at 272 miles.

However, battery technology is improving rapidly. Toyota recently announced plans to release a solid-state battery by 2027 with a range of close to 1,500 kilometers (932 miles).

Generally speaking, you should expect to pay more for more range so although bigger batteries are better, the improvement can increase acquisition cost significantly.

You should start by taking a realistic view of how much range you really need. Is the car used almost exclusively for commuting and local errands or is it used for lengthy vacation trips? The average American commutes 41 miles a day. If the car is charged each night, and used for only local commuting and errands, a 300-mile battery is overkill.

On the other hand, a vehicle frequently used for long trips may justify a larger battery. One important point to note is that range plummets drastically if the vehicle is towing a large trailer or boat, especially in very cold weather. Although an electric vehicle can pull very heavy loads, it is difficult to justify using an electric vehicle to pull a recreational trailer if you are forced to stop every 100 miles and recharge.

Charging Infrastructure

The other aspect of range anxiety is the availability of charging equipment. Charging stations are obviously not nearly as common as gas stations.

However, approximately 80% of vehicle charging occurs overnight and at home. If you are fortunate enough to have a space to charge at home, range anxiety becomes a rare issue since your car, every morning, starts with 200 to 300 miles (or more) of range. But it is still an issue on a long-distance trip.  Fortunately, recent developments are providing some hope on this horizon.

There are three competing charging standards in North America. The three standards use different plugs and, without compatible adapters, are not interchangeable. Only one standard, the one developed and adopted by Tesla, is widespread in the US. The alternative standards are much less frequent and some of the non-Tesla networks have been criticized for low reliability.  Recently, however, Tesla has made their standard available to other companies. Ford, GM, Volvo, and Rivian quickly jumped on board, and it appears likely that other brands will migrate as well.

This greatly increases the charging stations available to these vehicles (though Tesla owners may find the stations suddenly crowded).  Although reports are that there are often lengthy waits at charging stations on the west coast, where BEVs are more frequent, there are seldom any current delays in Maryland. Tesla superchargers also have a good record when it comes to reliability.

At the time this is written, Tesla had over 45,000 charging stations in the world.  In the US, Tesla charging stations are located along all the major interstates and most major state highways. There are over 20 locations in Maryland, each having as many as 12 chargers. Additional chargers are being developed at a very fast pace.
 
Significantly, the federal Inflation Reduction Act is throwing a huge amount of money at the charging infrastructure issue. The act included $7.5 billion for new charging stations along major transit routes. The Maryland Department of Transportation has been aggressive in applying for grants under this program for the construction of charging infrastructure.

The bottom line is that charging infrastructure is generally sufficient on the East Coast and likely to become even easier to locate. However, it is true that a long trip  to Florida or Cape Cod for example, will require a level of planning that is not required for a fossil fueled vehicle.

Another question frequently asked is, how long does it take to fully charge the battery? The answer depends on the type of chargers used.  A Level 1 charger is just a cord that plugs into a typical AC outlet.  It charges extremely slowly and can take 40 to 50 hours to fully charge a battery.  

A level 2 charger uses a 240 outlet – like the outlets used for an electric clothes dryer or stove. This is the most common charging equipment for home use. A level 2 charger will fill a battery in 4 to 10 hours. Given that the chargers are typically used overnight, that charging rate is sufficient. That is especially true since it would be rare for a battery to be completely empty and require a full charge for the next day.

A level 3 charger is a DC Fast Charger. Charging stations along major highways, and Tesla Superchargers, are level 3. Charging time, from empty to full, is typically between 20 minutes and one hour. Depending on the length of the trip, this can add significantly to travel time.  However, most drivers will attempt to schedule charging times on lengthy trips to coincide with breaks or meals.

A separate issue is the availability of home charging equipment. Homeowners with garages, driveways or dedicated parking spaces can usually add charging equipment without much difficulty. The cost will depend on whether electric service, especially 240-volt service, is available at or near the parking space. Much more difficult are multi-family housing without dedicated parking spaces.

Maryland recently passed a law requiring new residences that include a separate garage or driveway to be electric vehicle ready. Charging requirements for new multi-family residences are being studied by the Maryland Energy Administration but some local building codes are also anticipating charging needs.

Significantly, an HOA or condominium association cannot forbid the installation of electric vehicle charging equipment on a parking space that is deeded or specifically assigned to a resident if the resident pays installation and electricity costs, obtains building permits, and provides a certificate of insurance.  (Maryland Real Property Article 11-11.4 and 11B-111.8).

No provisions are made in Maryland law for multifamily housing without designated parking spaces. There are, however, commercial companies (and some utilities) that are willing to install level 2 equipment if requested by the HOA, condominium association or landlord that controls parking. Typically, the equipment is then owned by the entity that owns the parking space. The owner may charge for use with the proceeds going to the landlord, the HOA, or condominium association. Some parking spaces may also have access to typical AC outlets that provide a trickle of current but that will be sufficient only for cars that are seldom driven any distance.

If overnight charging is unavailable, the owner will be dependent on public charging equipment. If there is a level 3 charging station nearby, this workaround is feasible, especially if the car is not incurring significant mileage. If dependent on public charging stations, the cars owner should assume the car will need to spend 20 to 60 minutes at a charging station for every 200 to 300 miles driven depending on battery size and the charging speed of the vehicle.

Obviously, the biggest problem are areas where there are charging equipment ‘deserts’ and few designated parking spaces. For example, urban neighborhoods with row homes that are dependent on street parking. There are no easy solutions for those neighborhoods and the problem is especially acute if the neighborhoods are economically challenged and therefore not attractive to commercial charging companies. Maryland law has directed the Maryland Energy Administration and the Department of Transportation to devote resources to addressing the problem of disadvantaged communities, but a solution will be difficult and may take time to implement.

The Grid

A final concern is whether our electric grid can handle the additional demands created by a transition from fossil fueled vehicles to PHEVs and BEVs. The issue is further complicated by the fact that the state legislature is simultaneously transitioning buildings from fossil fuel to electric heat pumps and closing fossil fuel power plants in favor of clean energy.

The changes will clearly stress the system. The state has, historically, reached peak demand on hot summer days. With a reliance on heat pumps and overnight charging of vehicles, the peaks may occur on cold winter nights – when solar energy production drops to zero.

The transitions will also have huge impacts on the transmission and distribution networks. The current grid was designed to distribute power from a few centralized locations – huge fossil fuel power plants – to homes that had relatively modest demands. The new grid must gather power from decentralized renewable power sources and distribute much larger quantities of electricity to those homes.

The issue is being closely studied by several state and federal agencies, but the honest answer is that we do not yet know the answer to this question.

Summary

For good or ill, Maryland has embarked on a transition over multiple years, away from gasoline powered cars to electric vehicles. The transition will be slow but inexorable. Vehicle owners must each decide when to go with the tide rather than fight it. That decision will depend on your own considerations of the climate, economic, and personal convenience factors.
 

Michael C. Powell
410-576-4175 • mpowell@gfrlaw.com