The German government has announced that it will reduce the financial incentives for buying electric cars from next year, sparking anger among environmentalists, carmakers and consumers. The decision comes amid a budget crisis and a surge in exports of subsidized e-cars to other European countries.
The German government has been supporting the purchase of electric cars since 2016, offering up to €9,000 in subsidies for battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs) under certain conditions. The aim was to boost the adoption of e-mobility and reduce greenhouse gas emissions from the transport sector.
However, the government faced a shock constitutional court ruling in November 2023 that upended its spending plans and forced it to cut costs in various areas. One of the casualties of the budget crisis was the e-car subsidy scheme, which was abruptly ended for business buyers as of September 1, 2023. The move resulted in a 35% reduction in all plug-in registrations year over year for the month of September.
Private buyers are still eligible for the e-car subsidy, but that will also undergo a further reduction in January 2024. Currently, BEVs under €40,000 are eligible for a €4,500 subsidy, while BEVs costing between €40,000-60,000 get a €3,000 subsidy. Starting in January 2024, the BEV subsidy will go to €3,000 for all vehicles under €45,000, with no subsidy at all for BEVs over that cost.
The government argues that the e-car subsidies are becoming unnecessary as battery prices fall and e-cars become more affordable and popular. According to the economy ministry, the subsidies have already achieved their goal of giving e-mobility a major boost in Germany.
E-Car Subsidy Abuse Prompts Government to Tighten Rules
Another reason for the government to rethink the e-car subsidy scheme is the widespread abuse of the system by dealers and buyers who resell their subsidized e-cars to other European countries after the required holding period of six months. This practice has become a lucrative business model, as the subsidies make the e-cars cheaper in Germany than in neighboring markets.
According to a study by the Center of Automotive Management (CAM), around 30,000 e-cars were sold abroad as nearly new used cars in the first nine months of 2023 alone. The study estimates that in 2023, up to €240 million in state subsidies for purely electric vehicles may not have been used as intended.
The government has recognized this problem and is planning to adjust the funding system from 2023. The changes are likely to include an extension of the minimum holding period from six to 12 months, and a requirement to pay back the subsidy if the e-car is sold within a year. The depreciation of a used e-car after 12 months is significantly higher than after six months, making a resale abroad less attractive.
E-Car Subsidy Cut Sparks Anger and Disappointment
The plan to cut the e-car subsidies has met with strong opposition from various stakeholders, who claim that the government is jeopardizing the transition to e-mobility and the climate goals. They argue that the subsidies are still needed to make e-cars more accessible and competitive, especially for low- and middle-income households.
Environmental groups, such as Greenpeace and the German Environment Aid, have criticized the government for failing to support the shift to e-mobility, which they see as a key measure to reduce CO2 emissions from the transport sector. They have called for a continuation and expansion of the e-car subsidies, as well as a ban on new registrations of fossil-fuel vehicles by 2030.
Carmakers, such as Volkswagen and BMW, have also expressed their disappointment with the government’s decision, saying that it will hurt the demand and innovation for e-cars in Germany. They have urged the government to reconsider its plan and maintain the current level of subsidies until 2025, as previously agreed.
Consumers, who have been flocking to buy e-cars in recent years, have also voiced their anger and frustration with the government’s move, saying that it will make e-cars less affordable and attractive. Many have accused the government of betraying them and the climate, and have threatened to boycott the upcoming federal election in September 2024.
Germany’s E-Mobility Ambitions Under Scrutiny
The plan to cut the e-car subsidies has raised doubts about Germany’s commitment and ability to achieve its e-mobility ambitions. The country has set a goal of having 15 million plug-in vehicles on the road by 2030, as part of its broader strategy to become climate-neutral by 2045.
However, the current economic climate and the reduced availability of subsidies may hamper the progress and popularity of e-mobility in Germany. According to the Federal Motor Transport Authority, there were only 1.3 million plug-in vehicles registered in Germany as of September 2023, accounting for 3.2% of the total car fleet.
The government has said that it will continue to support e-mobility through other measures, such as tax advantages, infrastructure development, and innovation funding. However, many experts and observers have questioned whether these measures will be enough to overcome the challenges and barriers that e-mobility faces in Germany.