http://www.businessweek.com/news/2013-01-03/congress-aids-oregon-electric-motorcycle-maker-in-budget

Bloomberg News

Congress Aids Oregon Electric Motorcycle Maker in Budget

January 03, 2013

Senator Ron Wyden

Senator Ron Wyden, an Oregon Democrat, got involved when constituents pointed out the disparate tax treatment between electric cars and motorcycles. Photographer: Kris Connor/Getty Images

The fine print of Congress’s Jan. 1 budget deal includes a tax credit rewritten by Oregon lawmakers to benefit home-state motorcycle manufacturer Brammo Inc.

The credit, which reduces federal income taxes for buyers of plug-in vehicles with two or three wheels, would help the U.S. electric-motorcycle industry create 16,000 jobs over five years, according to Senator Ron Wyden, an Oregon Democrat. He included the change in a Senate proposal last year that became part of this week’s deal to prevent automatic tax increases on most Americans.

The electric-motorcycle credit is among tax benefits initially described as temporary that morph into permanent provisions benefiting a few companies, said Erich Zimmermann, a senior policy analyst tracking transportation issues at Taxpayers for Common Sense, a Washington watchdog group.

“We’ve had deep concerns about tax extenders,” Zimmermann said. “They’re supposedly temporary. And here they go, on and on.”

Wyden helped revise a more broadly available tax credit, which expired at the end of 2011, that applied to so-called neighborhood electric vehicles and motorcycles, said Craig Bramscher, Ashland, Oregon-based Brammo’s chief executive officer. He credited Wyden and Republican Representative Greg Walden for the measure.

The credit as amended applies only to two- and three- wheeled vehicles capable of traveling at least 45 miles per hour (72 kilometers per hour), fast enough to travel on public roads.

Golf Carts

“A whole bunch of golf carts got paid for with the tax credit,” Bramscher said. “I don’t think that was the intention. There were trying to clear that up for real transportation.”

Brammo’s customers will be eligible for tax credits of as much as 10 percent of the price of models like the $7,995 Enertia and the $18,995 Empulse R. Bramscher said the company sells thousands of motorcycles a year and may see sales grow 20 percent to 30 percent.

“We’re ramping up right now to produce more bikes every day,” Bramscher said. “Based on quick dealer feedback we’ve just had this morning, it’s going to have an impact.”

Wyden got involved when constituents pointed out the disparate tax treatment between electric cars and motorcycles, said Keith Chu, the Oregon Democrat’s spokesman. A second Oregon company, Eugene-based Arcimoto Inc. is also expected to sell vehicles that qualify, Chu said.

Export Opportunity

“Electric motorcycles present a potentially major foreign export opportunity for the U.S., so it makes sense to support a domestic market while the industry matures,” Chu said.

Andrew Malcolm, a spokesman for Walden, didn’t immediately respond to an e-mail and phone call seeking comment.

Pike Research, a market intelligence and consulting company with offices in Boulder, Colorado, and Washington, estimates global sales for electric motorcycles and scooters will reach 18.6 million a year by 2018, according to a Dec. 31 report.

Congress is changing the tax credit to make sure the money goes to supporting the next generation of technology, said Genevieve Cullen, vice president of the Washington-based Electric Drive Transportation Association.

Motorcycles are a growing part of the market, Cullen said. They require smaller versions of the expensive battery packs that weigh down plug-in cars like the Chevrolet Volt.

Commuting Option

“It reinforces the market for lithium-ion batteries,” Cullen said. “It provides a commuting option that’s zero-noise, zero-pollution. And there’s a vast, vast international market.”

Only a few companies in the U.S. make electric motorcycles. In addition to Brammo and Arcimoto, Zero Motorcycles Inc., of Scotts Valley, California, may benefit from the tax credit. If the market continues to grow, bigger manufacturers like Bayerische Motoren Werke AG and Honda Motor Co. may get in, Bramscher said.

Zero now sells about 40 percent of its bikes overseas, mostly in Europe, said Jay Friedland, the closely held company’s vice president of strategy and sustainability. That may grow to 60 percent based on demand, Friedland said. The company has sold about 2,500 motorcycles in the past five years, he said.

Market research has indicated that a credit taking $1,000 off the selling price would have a “significant” impact on sales, he said. The company expects customers looking at its premium $15,995 motorcycle to pay closer to $14,500.

American Jobs

“This is about creating American jobs,” Friedland said. “We need to do a shift in transportation. The more of these vehicles we can get on the road, whether they’re two-wheelers, three-wheelers or four-wheelers, that’s really going to be good.”

The revised tax credit also applies to three-wheeled vehicles including the Alias, under development by the California-China joint venture ZAP (ZAAP:US) Jonway. It seats three people and looks like a sports car with two regular-sized wheels in the front and a wide tire in the back. It has a top speed of 85 miles per hour and a 100-mile range.

There is an incentive for manufacturers who want to make car-like vehicles to stick to three wheels because the National Highway Traffic Safety Administration regulates them as motorcycles, meaning they get less-extensive crash testing and safety mandates, Bramscher said.

Safety Standards

Still, motorcycle companies can run afoul of regulators. NHTSA has accused ZAP Jonway of dragging its feet in notifying regulators about brake defects in its 2008 Xebra, which looks like a subcompact car except for having three wheels. Last October, the agency took the rare step of holding a public hearing on whether the Santa Rosa, California-based company violated U.S. law by not fixing the vehicles.

After the hearing, regulators ordered ZAP Jonway to repurchase the vehicles from their owners for an average cost of $3,100 and permanently mark their titles as a “junk automobile.” ZAP Jonway hasn’t complied with the order, according to agency documents, and NHTSA is considering additional enforcement options.

Karen Aldana, a NHTSA spokeswoman, declined to elaborate. Calls placed to ZAP Jonway’s California headquarters weren’t answered.

ZAP Jonway’s $38,500 Alias, offered for sale on the company’s website, meets the criteria for the reconstituted tax credit.

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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