State funding for electric cars in Germany is coming to an abrupt end. Until a few days ago, buyers of purely electrically powered vehicles could count on a government “environmental bonus” of 4,500 euros – plus a share that the manufacturer covered. This is now history almost from one day to the next, the funding for electric vehicles is becoming another victim of the Karlsruhe debt brake ruling.
What this step means is foreseeable; car companies are already reacting in panic with their own discounts, and experts are warning of a massive collapse in demand. After all, the support had already melted away at the beginning of the year, and there had already been warnings back then that the market could dry up. In fact, new registrations of purely electric cars in 2023 have already declined slightly compared to the previous year, while those of plug-in hybrids – for which the funding was completely eliminated – have virtually plummeted.
A look at other European markets in which subsidies for electric cars have been completely or temporarily reduced shows that the fears are only too justified. The Nordic countries in particular, where there was a strong focus on battery vehicles from an early stage, function like a test laboratory in which the effects of individual funding packages can be seen.
A particularly clear example is Denmark. The country is one of the better developed markets when it comes to electromobility – with almost 34 percent of new registrations, it is currently ahead of Germany. However, there is a rough start to this: until 2015, the rule in Denmark was that buyers of electric cars did not have to pay registration tax, a mandatory fee that can quickly become very high. In 2015, a new Liberal government took over with a plan to gradually reduce this incentive. The result was a dramatic collapse in demand: in 2016, new registrations of electric vehicles in Denmark were only a quarter of the previous year and subsequently remained at this level. The market actually stopped growing.
In view of this shock, the subsidies were started again in 2019, which had immediate consequences: in 2019, the number of new registrations was above 2015 for the first time and has been rising steeply since then. The funding regime had flexed its muscles.
In the Netherlands, which has a comparable market share to Germany, the effect a date threshold can have was observed in 2020. For local zero-emission cars that were used as company cars, there was a clear tax advantage for the private portion, which, however, was abolished: in 2020, users paid eight percent, from 2021 twelve percent was due, and there was a further increase in 2022. At the same time, the price threshold up to which this advantage was granted was lowered.
The result: a run on electric cars in December 2020 and a widespread lull throughout the following year. New registrations of battery vehicles fell and only recovered in 2023.
The example of Norway shows that even in highly developed markets, government incentives still play a role. The non-EU country is the world leader in the share of electric vehicles, with a market share of 83 percent for purely electric cars in 2023 (for comparison, Germany: 18 percent). The reason for this enormous development is a whole arsenal of promotional measures: lower registration taxes when buying a car, exemption from VAT, significantly lower vehicle tax, advantages when using it as a company car and a number of privileges such as the opportunity to park for free Charge your car for little money or for free.
The goal was ambitious, but not unrealistic: by 2025, not a single new combustion engine should be sold, so all newly registered cars should be electric vehicles. But this goal is now in jeopardy because Norway is also reducing subsidies. The tax relief for new cars was reduced in 2023, and the advantage for electric company cars no longer applies. The result is that in 2023 new registrations of electric cars will have declined for the first time since 2016. The exact minus will only become clear at the end of the year, but it will definitely be a double-digit percentage.
One thing seems clear: without massive government funding, the existing market for electric cars in Europe would hardly have gotten off the ground; the price differences were initially too great and the added value that a battery-powered vehicle brought with it compared to a combustion engine was too opaque. However, this finding also has a downside: Whenever the subsidies are reduced, buyers’ interest decreases rapidly. An experience that Germany is now likely to have as well.
This article first appeared on Capital.de.
