The Fuse

Uber EV Incentive Program: A Welcome Start

by Juan Jose Pedroza | July 13, 2018

In late June, Uber began a new pilot program to promote electric vehicle (EV) adoption to its drivers. The “EV Champions Initiative” will provide Uber drivers in certain locations with financial incentives, data, and intelligence with the goal of expanding the company’s EV footprint. Uber’s new initiative is a large step toward increasing the number of EVs in its overall vehicle fleet, reinforcing the belief that transportation network companies (TNCs) will catalyze the transition to advanced fuels.

Uber’s new initiative is a large step toward increasing the number of EVs in its overall vehicle fleet, reinforcing the belief that TNCs will catalyze the transition to advanced fuels.

Uber aims to test the plan in seven cities: Austin, Los Angeles, Montreal, Sacramento, San Diego, San Francisco, and Seattle. The move will advance Uber’s goal of completing 5 million EV trips in its network within the next year. The pilot program will serve as a testbed for strategies to achieve this goal, with Uber offering different types of incentives depending on the city. For example, EV drivers in San Diego will receive an additional dollar per ride over the normal fare, up to $20 per week, while those in other cities will benefit from similar financial incentives. One notable exception is Los Angeles, where drivers will instead receive only notifications about the benefits of EVs, including state rebates and local utility incentives, rather than financial incentives.

While Uber’s move is the first major action by a TNC to specifically promote EVs, which is a remarkable shift and portends greater usage in the coming years, it is also a recognition of the barriers EVs face in the market. Although adoption has grown steadily, EVs represented only 200,000 out of the roughly 17 million vehicles sold in 2017. Even in California, the state most praised for its EV adoption rates, penetration rates remained at about 5 percent of new sales in 2017.

Drivers to benefit from EVs

Given that oil prices have been steadily rising since early 2016 and gasoline now costs more than $3 per gallon, drivers, especially ones who clock in 50 hours per week, stand to benefit greatly by reducing exposure to volatile petroleum-based fuels and moving toward low and stable electricity prices.

Low electricity prices, combined with lower maintenance costs, mean that at high driving rates, EVs are cheaper than ICE vehicles to own for the long run.

Low electricity prices, combined with lower maintenance costs, mean that at high driving rates, EVs are cheaper to own for the long run. By many estimates, at current electricity prices, an “eGallon” costs between one half and one third as much as a gallon of gasoline. In California, for example, regular gasoline costs around $3.50 per gallon today, compared to around $1.50 for the equivalent amount of electrical energy, according to Energy Department data.

TNCs such as Uber will likely to see increasing economic benefits of EVs, for users and drivers, prompting a further push to make them a larger part of their fleets. EVs obviously provide greater diversity in the transportation sector, allowing companies to pivot away from entire reliance on petroleum, which trades in an international market that is prone to volatility from OPEC collusion, unplanned outages, and demand increases in emerging countries.

Skepticism persists

Uber’s plan helps address the informational and upfront cost barriers to widespread EV adoption. Assuming a driver could take full advantage of Uber’s incentives, drivers could add approximately $1,000 per year to existing state and federal rebates and tax credits. A recent study from the Rocky Mountain Institute suggested that drivers in ride-hailing companies are ideal candidates for EVs, saving money at the 40-hour per week mark. Uber’s move makes EVs even more attractive, though questions remain as to how much this new program will influence consumer behavior. The $7,500 federal tax credit is not without limits: Each manufacturer (or rather its customer’s) can submit only 200,000 applications, at which point the tax credit tapers off, eventually ending after one year.

SAFE’s analysis in the figure below indicates that tax credits remaining to Tesla and GM—America’s two largest producers of EVs—are quickly drying up. A new bill currently before Congress would lift this cap, freeing Tesla and GM (and other companies) from this limit on their ability to promote electric cars. Whether the bill will become law is uncertain.

Overcoming skepticism surrounding EVs will become increasingly important with the introduction of proper and substantive state policies.

While the additional monetary benefits are relatively straightforward to quantify, Uber’s efforts to fill informational gaps regarding EVs are equally, if not more, critical to meeting their self-imposed goal of providing 5 million EV trips within the next 12 months. Myths regarding EVs are persistent, and seemingly touch every aspect of electric car ownership—from the overstressed inconvenience of recharging to their undervalued performance. Overcoming these biases will be crucial to achieving widespread adoption, and that is why Uber’s plan may be a helpful step in this process.

Overcoming these barriers will become increasingly important with the introduction of state policies specifically directed at EVs or with direct impact on EVs.

But in order for policy initiatives to bear some fruit, it is important to recognize that the benefits of EV adoption will still accrue mostly to a small subset of drivers: Those who drive full-time and have sufficient income to take full advantage of the federal tax credit. For this group, Uber’s extra fares for driving an EV add up to an additional $1,000 over the course of a year, providing more reason to purchase an EV. For other drivers, however, the extra fares will not make EVs significantly more affordable. Given current EV penetration rates and their goals, the company would do well to provide as many incentives as possible, helping bridge the gap by continuing to serve as an industry leader. When EVs eventually become more mainstream, Uber’s plan will likely be considered a key turning point. After this initial program is completed, Uber should adapt and expand the initiative nationwide, especially given that not all states have seen the EV penetration rates that California has. People respond to incentives, and Uber’s EV Champions Program is a critical first move by a TNC to accelerate EV adoption it the nation’s auto fleet. The company is poised to continue to innovate in this space.