By Brad Berman · February 13, 2016

The United States is no longer the biggest electric vehicle market in the world. While EV sales in Europe and China are on the rise, American car buyers have been slower to purchase plug-in vehicles—partly explained by lower gas prices.

It’s estimated that EV sales in China last year eclipsed 220,000 units, while Europe tallied about 186,000 sales. Meanwhile, US buyers purchased about 116,000 electric cars. The weak EV market in the US comes into focus when you consider that the Netherlands, a country of roughly 17 million people, added nearly 44,000 plug-in vehicles in 2015—while the US, with its population of almost 320 million, put about 116,000 new plug-in cars on the road last year.

The low price for a barrel of oil is usually blamed for the six-percent drop in US electric car sales in 2015, compared to the previous year. However, sales in the UK and Germany nearly doubled last year. The explanation can be found in the complex interplay of purchase incentives and fuel taxes.

On the surface, it appears that the US offers comparable EV incentives relative to China and many countries in Europe. However, you also have to look at the purchase structure for internal combustion vehicles. For example, in the Netherlands, a 25-percent value added tax (VAT) applies to all new vehicle purchases—but an exemption is provided for purchasing an electric vehicle as as company car. In other European countries, the VAT is removed for personal purchases of EVs as well.

Furthermore, in Shanghai, residents are prohibited from driving gas-powered vehicles in crowded urban areas for several days each week, in an effort by the government to cut congestion and emissions. Major cities throughout Europe are considering similar measures—while exempting electric-drive cars. So, it’s not just that EVs are discounted—they elude hefty taxes and other restrictions.

At the same time, Americans pay among the lowest gas taxes in the world, while gas and diesel in Europe is highly taxed. The 70-percent drop in crude oil prices translated into a 40-percent drop in gas prices in the US. But because high gas taxes create a price floor, the drop in fuel prices was only about 20-percent drop in the UK. Petrol still costs about $4.50 per gallon in much of Western Europe, compared to the $2 a gallon average here—a situation that erodes the price benefit of electric fuel.

To influence consumer behavior, governments can choose between positive and negative incentives. In the US, we offer discounts for plug-in purchases and special perks like access to carpool lanes for solo drivers, but the US government has been reluctant to discourage drivers of less efficient vehicles with higher taxes either at the time of purchase or at the pump. This helps explain why sport utility vehicles accounted for nearly half the vehicles purchased here last year, while EV sales were stagnant.