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.