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June 04, 2020 05:45 AM

Germany doubles EV incentives, excludes ICE cars from stimulus program

Christiaan Hetzner
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    VW ID3

    Germany's incentives for electric cars will help sales of EVs such as the VW ID3, which is due to go on sale in the summer.

    FRANKFURT -- Germany's auto industry failed in its bid to get direct government support for purchases of conventional cars after the Berlin government said it will double incentives offered to buyers of ultra-low emissions cars as part of an overall 130 billion-euros ($146 billion) economic recovery package.

    As part of the coronavirus stimulus program, the government has increased subsidies for battery-powered cars and plug-in hybrids with CO2 emissions of less than 50 grams per kilometer. It excluded incentives for purchases of gasoline and diesel cars, which opponents said would undermine the country's climate protection goals.

    "Everything we are doing must be targeted in such a fashion that it contributes to the future transformation of our society," Finance Minister Olaf Scholz told reporters on Wednesday. "That is why there is an important climate protection program included focused on the technological shift in the automotive industry and the electrification of vehicles."

    Buyers of full-electric cars with a net list price of up to 40,000 euros will be eligible for a grant of 9,000 euros, comprising 6,000 euros from the government, twice as much as previously, and 3,000 euros from automakers.

    Buyers of plug-in hybrids priced below the 40,000-euro limit will also get higher subsidies, with 4,500 euros from the government and 2,250 euros from automakers.

    The stimulus will benefit mainly smaller, cheaper full-electric vehicles such as the VW eGolf hatchback and BMW X1 plug-in hybrid crossover. Tesla's lowest-priced Model 3 just squeezes in at 39,990 euros, according to the government's list of eligible vehicles.

    Vehicles with a net list price above the 40,000-euros threshold but less than 65,000 euros qualify for lower incentives than the 9,000-euro bonus. The Audi e-tron EV, for example, is eligible for a 7,500 euro discount, while the Mercedes-Benz GLE plug-in will qualify for 5,625 euros.

    The government estimates the cost of the purchase incentives to the taxpayer at 2.2 billion euros.

    As part of the package, new-car buyers will benefit from a lowering of value-added tax to 16 percent from 19 percent.

    Analysts said it would not be enough to significantly boost car demand. "The lowering of VAT will hardly provide an impetus," said Peter Fuss, a partner at EY, adding that electric cars are still too much of a niche product to lift the overall market.

    The government will also overhaul motor vehicle taxation. From January 2021, cars with emissions of more than 95 grams of CO2 per kilometer will face a staggered tax that will penalize vehicles with high CO2 emissions such as SUVs.

    Politicians hope the fresh funds will help to stimulate slow demand.

    Registrations fell 50 percent to 168,148 in Germany in May, the KBA motor transport authority said on Wednesday. The drop followed a 61 percent decline in April when showrooms were closed because of coronavirus restrictions. Dealerships were allowed to resume car sales after April 20.

    "Reopening the showrooms had as good as no positive effect for demand and the situation remains dramatic," Rainer Zirpel, head of the VDIK importers association, said in a statement.

    Dealers disappointed

    The ZDK German dealers association said it was disappointed that incentives will not be offered for gasoline and diesel cars.

    The stimulus program is "not even a drop in the ocean" in helping to move unsold new cars worth around 15 billion euros that are in dealerships and on dealers' books, ZDK President Juergen Karpinski said in a statement.

    The reduction in value added tax to 16 percent, limited to six months, will have a very small effect on sales, he said.

    Germany's governing conservative and Social Democrats coalition agreed on the stimulus package on Wednesday after they had wrangled for days over incentives. Social Democrats opposed offering incentives for vehicles with gasoline and diesel engines.

    Auto industry executives had lobbied for the stimulus to apply to all cars including internal combustion and electric models. They were supported by the state premiers of Lower Saxony, Bavaria and Baden-Wuerttemberg, home to Volkswagen, BMW and Daimler.

    Full-electric cars made up 1.8 percent of new passenger car registrations in Germany last year, with diesel and gasoline cars accounting for 32 percent and 59.2 percent percent respectively. Hybrid cars made up 6.6 percent of registrations.

    Other European countries have started to unveil their own stimulus packages. An 8 billion-euro plan in France to aid the auto industry includes incentives for electric vehicles that can reach 12,000 euros with scrapping incentives for eligible buyers.

    Reuters and Bloomberg contributed to this report

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