There is no subsidy for the purchase of cars priced over 65,000 euros, and that will apply to vehicles priced at 45,000 euros and more from 2024.
Subsidies for company cars be stopped, with only private consumers benefiting from the program.
The incentives paid to buyers of electric cars will expire completely once an allocated sum of 3.4 billion euros ($3.44 billion) from the next two years' budget is spent, according to government sources.
The government will stop incentives for plug-in hybrid cars at the end of the year entirely -- something that Habeck had advocated due to doubts over the plug-in hybrids' climate credentials because they are heavier and the battery-powered mode often lasts for only short distances.
"For the forthcoming funding phase, we are placing a clear focus on climate protection and are concentrating funding on purely battery-electric vehicles," Habeck said.
Sales of all-electric cars in Germany almost doubled to 328,000 in 2021 compared to the previous year, thanks in part to incentives.
There are now over 600,000 electric-powered vehicles on German roads. Including hybrids, there are well over a million.
The share of purely electric cars in new car registrations in Germany recently came in at around 14 percent.
Volkswagen has the largest market share for electric cars in Germany at 20.3 percent, followed by Tesla with 11.2 percent, according to the latest figures from motor vehicle authority KBA.
The VDA auto association criticized the planned subsidy cuts in a statement.
"In times of rising costs and burdens, the decision to unilaterally and comprehensively cut funding is incomprehensible," VDA President Hildegard Mueller said.
She also criticized the move to exclude company cars from the initiative, saying that "a switch to e-mobility is needed in all fleets."