Debate Intensifies Over Government Incentives for Electric Vehicle Purchases

A renewed discussion surrounds the potential reintroduction of state-funded incentives for the purchase of new electric vehicles (EVs) in Germany. This comes after the previous government abruptly ended the existing support scheme in December 2023, sparking diverse opinions among policymakers about the merits and drawbacks of such a measure.

Both the Union and SPD parties have expressed interest in promoting EV sales through financial incentives, as outlined in their recent exploratory paper. However, these proposals have garnered both support and opposition from various sectors.

Christiane Benner, the head of IG Metall, has voiced her concerns regarding a simplistic return to a blanket purchase subsidy. She believes that a mere incentive scheme would be misguided, cautioning against transient solutions. Instead, Benner has suggested alternative forms of support, such as targeted relief for company cars and tax breaks for individual buyers. Furthermore, she advocates for a special leasing model that would support low-income households, similar to initiatives seen in France. Importantly, Benner insists that any new purchase incentives should only apply to vehicles manufactured within Europe, arguing that it would be unjust to subsidize vehicles produced in countries like China.

Benner also highlighted the pressing issues facing the German automotive industry, particularly in light of profit declines reported by major manufacturers such as Volkswagen, Porsche, and BMW. She described the current outlook as troubling, noting that Germany is lagging behind in battery technology and digitalization, which could have long-term consequences for the sector's competitiveness.

Advocates for greater government support for electric vehicle purchases, such as the Automotive Cluster East Germany, argue that in times of economic uncertainty, consumers tend to hesitate before making significant purchases like cars. Jens Katzek, the organization's managing director, emphasized the necessity for incentives and stable energy costs, at least during the transition phase. He believes that electric vehicles would already be more appealing to consumers if uncertainties regarding charging infrastructure, energy supply, and electricity pricing were resolved.

In 2024, the number of newly registered electric vehicles in Germany saw a significant decline, with approximately 380,600 fully electric cars registered, representing more than a 25% drop compared to the previous year. This downturn followed the termination of purchase support for commercial registrations in September 2023 and the subsequent cessation of incentives for private registrations in December 2023, which was a result of a court ruling that prohibited the reallocation of funds.

Currently, the remaining government funding allows for a limited benefit where individuals using battery-electric company cars can only declare 0.25% of the car's gross list price as a taxable benefit for vehicles priced up to EUR70,000. While this provision does not benefit all commercial registrations, it does apply to a significant portion of the market, which is predominantly composed of business registrations.