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Israel’s Love for Electric Vehicles Will Cost Them, Both Time and Money

There has certainly been a growing interest from Israeli motorists and the government for Electric Vehicles (EVs) over the last few years, as consumers are not only facing higher fuel prices but looking to fast-track government efforts that plan to eradicate fossil fuel vehicles by 2030.

Local estimates reveal that the number of Electric Vehicle (EV) models increased by more than 50% between 2019 and 2021, growing from 12 to 24, respectively. Innovation and investment for automotive startups have also significantly increased, as the number of auto-related startups grew from 207 in 2011 to more than 450 so far.

As an innovation, technology, and government investment grew, Israeli motorists were quick to change their attitude towards EVs, as several global competitors are fast entering the local car market.

Despite the positive market growth, and the millions allocated by the government to install more electric vehicle charging stations across the country, there are still several challenges that await EV motorists that will cost them both time and money in the near future.

Inadequate EV Infrastructure Availability

As the number of new electric cars grows, a wind of new efforts is being implemented to help support the thousands of EV motorists who look to enjoy their cleaner and greener vehicles.

The government, more so the Ministry of Energy, has been plowing millions into developing a policy that could soon see thousands of new charging stations being built in the next few years.

So far, there have been millions allocated towards upgrading and improving EV infrastructure. An earlier financial commitment last year saw more than NIS 30 million (US$9.4 million) invested in deploying 2,500 new charging stations by the end of 2021. Late last year, an additional NIS 24 million (US$7.5 million) was invested in helping upgrade EV chargers in major cities and metropolitan areas.

The financial investment has yet to meet its goals, as research found that by July 2021, there were roughly 1,000 functioning charging stations available in the country, with more planned for the upcoming years.

The lack of available charging platforms and adequate infrastructure needed to operate EVs in most parts of the country are hindering government efforts to meet its carbon-neutral goals.

With projected electric car sales to nearly double in 2022 to 19,000 and an estimated 215,000 EVs to be on the roads within the next four years, a lack of charging infrastructure could hold Israel back from becoming a global leader in the race to carbon neutrality and widespread adoption of electric vehicles.

Although the efforts to subsidize the construction of new charging stations reveal how serious the government is about lowering carbon emissions produced from fossil fuel motor vehicles, there’s still more to be done if they are looking to achieve this goal by 2030.

Research estimates that by 2025 more than 149,000 private chargers and 25,782 public chargers will be needed to meet the increased demand, according to the Samuel Neaman Institute for National Policy Research. These estimates leave the government with less than a decade to meet the rising demand for EV chargers.

As consumer interest is steadily growing, industry experts suggest that by the end of the year, electric cars will represent around 8% of all new car sales, provided that manufacturers and importers can receive their consignments on time.

During the first five months of the year, between January and May, more than 6,900 new electric vehicles were delivered in Israel. This figure represented around 5.6% of total car sales for the time and a 1.2% increase over the same period in 2021.

Severe backlog in the global supply chain, soaring material costs, labor shortages, and lockdowns in different parts of the world have delayed more than 12,000 new EVs awaiting delivery to Israel in the coming months.

Existing Charging Platforms Lack Innovation

Investment from the government, which is meant to subsidize 75% of the cost of construction of rapid charging stations, has not been enough to promote innovation from private companies and local authorities that are currently building new charging points.

According to a report by the Knesset Research Unit, “The target for construction of rapid and ultra-rapid charging stations by the end of 2020 was not reached, even at the end of 2021.”

At the time the report was published in late 2021, the existing 27 stations represented less than a quarter of the target. That number has now increased to 126 rapid charging stations being completed.

In the same Knesset report, around 97% of publicly available charging sockets have been classified as slow, lacking fast-charge capabilities. This has resulted in some motorists not finding these existing stations useful when traveling long distances in the country.

As electric vehicles look to become increasingly popular among Israelis in the coming years, government and local authorities will need to zoom out further than antiquated predictions.

To ensure both ends are being met halfway – motorists and government – existing charging facilities will need to be upgraded and well maintained. This leaves another problem, who to entrust with this responsibility, public or private contractors?

Then there’s the location of charging points, most of which are currently found in densely populated cities and less so along highways and freeways that traverse across the country. There are a few holes in the plan that have not yet been properly addressed, which is crucial if Israel is looking to ban the sale of fossil fuel vehicles in less than ten years.

Ongoing Tax Debate

Although electricity is tax-free in Israel, there has been an ongoing debate between motorists, manufacturers, and the government over a proposed tax on the electricity used to charge EVs.

On the one hand, the Israeli government argues that with more electric cars on the road, and fewer people needing to utilize fossil fuel, the transition will significantly hurt the government’s revenue on fuel and gasoline taxes. Currently, the government taxes the fuel industry 63% on the price of gas.

The rationale here is that with fewer taxes generated from the purchase of gas, the government will find it increasingly difficult to allocate adequate funds to state-sponsored programs and subsidies.

Though the Transportation and Environmental Ministries run separately from other government branches, in recent years, there has been a strong push coming from the Finance Ministry to increase the purchase tax on newly bought electric vehicles from 10% to 20%, and 35% from 2024 onwards.

The rate hike is a way for the Finance Ministry to make up for the US$6 billion estimated yearly losses due to the increased number of EVs on the road.

Even as government ministries look to find a compromise, motorists will be the ones ending up with the higher purchase bill, even if their new EV is still in backlog. The recent boost of 10% in purchase tax will apply to 2022 EV orders that were delayed due to the ongoing conflict between Russia and Ukraine, and port closures caused by COVID-related lockdowns in China.

Though the increase in purchase tax does come at a burden, as many consumers are struggling to keep up with the significant increase in the cost of living, there’s a slight chance they might still be paying less than the conventional consumer looking to purchase a combustion engine vehicle.

Looking Towards The Future

Although the Israeli government has been maximizing its efforts to support both the electric vehicle market and the need to become more carbon neutral by 2050, there are still a few pitfalls in their plan that have yet to be addressed.

For starters, the lack of electric vehicle charging infrastructure has perhaps been the biggest drawback in all of this. As new charging stations are being built, existing ones should be upgraded and well maintained if it looks to severe a growing EV market in the near future.

There are mixed emotions when it comes to the ongoing purchase tax that’s set to be implemented by January 2023, but this could perhaps make up for the billions in dollars being lost due to the decreasing number of motorists purchasing gasoline.

In more than a few ways, we can see how the government has been looking to upgrade its understanding and support for the local EV industry; though the majority of electric cars are still being imported, a collaboration between Israeli’s strong automotive startup market and EV manufacturers could bring new possibilities in the coming years.

Perhaps it’s a time when consumers are being pushed by rising costs and soaring gas prices to make a hard decision over whether they should purchase an electric car or not. While these factors are, for some part, out of government control, it perhaps gives a clear picture that dependency on depleting fossil fuels should soon start coming to an end.

About the Author
I am the founder and CEO of ValueWalk - a popular financial information company. Before launching ValueWalk, I was first an equity analyst at a micro-cap focused private equity firm and then moved to a small/mid-cap value-focused research shop. I also have experience working in business development for hedge funds. I live with my wife and four kids in Passaic, New Jersey.
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