BERLIN -- Chancellor Angela Merkel's government and German automakers agreed to increase cash incentives for electric cars as they attempt to accelerate the transition away from the combustion engine.
A so-called "Environment Bonus" for battery-powered cars priced up to 40,000 euros will be raised by half to as much as 6,000 euros ($6,680) per vehicle and the auto industry will continue to cover half the cost.
The subsidy means that a midrange version of VW's new ID3 battery-powered hatchback will cost around 24,000 euros to 25,000 euros in Germany, analysts Evercore ISI said in a note to investors.
Germany is closing in on Norway for European leadership with sales of almost 53,000 full-electric cars this year, according to the KBA federal motor transport authority.
Merkel's chief spokesman, Steffen Seibert, said it will be possible "to provide support for another 650,000 to 700,000 electric vehicles."
The measures were agreed Monday evening in Berlin between Merkel and executives from automakers, parts suppliers and labor unions, including the chief executives of Volkswagen, BMW and Daimler.
The changes will take effect this month and run through 2025, according to Bernhard Mattes, president of Germany’s VDA auto lobby.
Plug-in hybrid cars will also be eligible for incentives According to a German government document, grants for plug-in hybrids will rise to 4,500 euros from 3,000.
The incentives increase came a day after Merkel visited VW's electric-car plant in Zwickau, eastern Germany, for the start of ID3 production.
Merkel's Climate Protection Program 2030, unveiled in September, targets as many as 10 million electric cars on German roads by that year, a goal that most automotive experts say is unrealistic even with generous subsidies.
The government's push to promote electric cars includes boosting the number of public charging stations to 50,000 within two years. Automakers will help fund 15,000 of the stations by 2022.
BMW has said it will install 4,100 charging points at its German locations by 2021, with about half being open to the public.
Merkel said on Sunday that Germany needed 1 million charging stations by 2030 and urged carmakers and utility companies to play their part in helping to build the necessary infrastructure.
In September, at the Frankfurt auto show, Europe's carmakers warned governments that the EU rules could be disastrous for profits and jobs because mainstream customers were not buying electric vehicles.
As of the start of the year, there were about 420,000 electric and hybrid-electric vehicles in a national fleet of 47 million, according to the the University of Duisburg-Essen's Center for Automotive Research. The center's director, Ferdinand Dudenhoeffer, estimates a tally of about 5 million all-electric and hybrid car registrations by 2030.
Reuters contributed to this report