In an agreement between the government and automakers, Germany is moving closer to an electric vehicle purchase incentive, which would trim up to €5,000 from the purchase price of a new plug-in vehicle. Given the predisposition of German consumers towards consider electric vehicles, the growing popularity of EVs across Europe, and the importance of purchase incentives in driving EV sales, the measure has the potential to spur a dramatic uptick in EV adoption.
Given the predisposition of German consumers towards consider electric vehicles, the growing popularity of EVs across Europe, and the importance of purchase incentives in driving EV sales, the measure has the potential to spur a dramatic uptick in electric vehicle adoption.
German Chancellor Angela Merkel has a stated goal of putting 1 million electric cars on German roads by 2020, but in spite of surging EV sales in countries like Norway and the Netherlands, EVs haven’t truly taken off in Germany—only 30,000 plug-in cars have been sold so far, representing roughly .2 percent of vehicles sold, compared to nearly 1 percent across the European Union. Lack of a competitive purchase incentive is understood to be part of the issue—in Norway, for example, there is nearly a 100 percent tax placed on new vehicle purchases, but that tax is currently waived for buyers of electric cars. The proposal is well-timed: Recent data shows that EV sales are taking off in Europe, in spite of low oil prices, more than doubling in 2015 over the previous year.
The financial burden of the incentive, which remains in proposal status, would be shared by the German government and automakers. According to the Financial Times, the German government is willing to spend approximately €1 billion on purchase rebates for plug-in vehicles and hybrid vehicles (which would get a lower subsidy of €3,000). It would also subsidize charging infrastructure. However, automakers would also need to contribute a collective €600 million to the fund. Accordingly, on a per-vehicle basis, German buyers will receive the full €5,000, but sellers will receive only €3,000. Even if the measure is ultimately approved, Germany’s incentive will lag those offered by the United States, the United Kingdom, France, Japan, and China. However, Germany currently waives approximately €1,300 of the purchase tax on new EVs, which brings the total financial benefit to the consumer in line with other markets.
Germany’s automotive industry is the country’s largest manufacturing sector, but it has lagged behind some of its American and Japanese counterparts in aggressive development of electric vehicles, relying more on diesel cars to meet efficiency standards. Volkswagen’s Dieselgate scandal has rocked that approach, and now the company and its peers are pivoting to put greater focus on plug-in offerings. Volkswagen is sprinting to boost production and sales of plug-in offerings as part of the continued fallout from the scandal. Daimler shareholders are reportedly concerned that the company is not keeping pace with Silicon Valley companies like Tesla and Google on development of advanced vehicles. Earlier this year, the company made a symbolic decision to require all of its senior managers to drive electric vehicles. BMW has been ahead of its German peers on electrification, having invested early and heavily in developing the i3 and i8 offerings, but new leadership announced in March of this year is doubling down on electrification as the company’s long-term strategy. The German EV incentive has the potential to further encourage three of the world’s largest automakers to intensify their focus on plug-ins.
The Netherlands, in spite of having a population of only 17 million and representing 3 percent of the European Union, accounted for 30 percent of electric vehicle sales in the EU last year
If the German measure is approved, it could serve as a tipping point for electric vehicle adoption throughout the European Union. Germany is by far the continent’s largest car market, with nearly 3 million new vehicles sold every year. Research by the International Council on Clean Transportation suggests a strong relationship between robust government incentives and sales of EVs. Norway and the Netherlands provide the highest purchase incentives, and sales of plug-in cars are 5-6 percent of the market in the two countries. The Netherlands, in spite of having a population of only 17 million and representing 3 percent of the European Union, accounted for 30 percent of EV sales in the European Union last year, demonstrating the impact of public policy on incentivizing adoption.
Additionally, German consumers are likely to be responsive to the incentive, since recent research shows that purchase incentive was the second highest factor in determining willingness to purchase an electric car, following compatibility with lifestyle, and ahead of performance parity with an internal combustion vehicle. The environmental benefits of EVs are also likely to appeal to German consumers. According to a 2014 study by the government of Finland that examined national awareness and concern for the global environment, Germany is the fourth most environmentally conscious country in the world. This is corroborated by research from the German Institute for Consumer Policy—50 percent are reported to consider environmental impacts before making household purchases, while 82 percent approve of the idea of redesigning cities such that cars become unnecessary.
German consumers are likely to be responsive to the incentive, since recent research shows that purchase incentive was the second highest factor in determining willingness to purchase an electric car, following compatibility with lifestyle.
According to new research from the International Council on Clean Transportation (ICCT), policies designed to boost vehicle efficiency and increase use of alternative fuels—such as purchase incentives for EVs—when applied globally will underpin a seismic shift in oil demand between now and 2050. In ICCT’s research, its Technology Potential (TECH) scenario shows transportation oil demand being slashed nearly in half. “By 2050, policies that push vehicle efficiency and electric-drive technologies into the market and reduce fuel consumption of aircraft and marine vessels could reduce annual oil consumption after its peak in 2025, and avert a doubling of transportation oil demand from 2015 to 2050 that is projected under the Business as Usual (BAU) scenario,” the report reads. “Cumulatively, the policies and technologies associated with the TECH scenario could cut oil demand by 260 billion barrels […] Notably, the scale of these potential savings (56.9 mbd) in 2050 is greater than the total level of transportation oil demand in 2015 (51.4 mbd).”
ICCT forecasts that this collapse in oil demand would prevent an increase in oil prices to $130 per barrel in 2050. Instead, in its modeling, oil prices would reach $80 per barrel in 2025 and remain there through the forecast period. The research acknowledges that factors such as geopolitics and price speculation contribute to volatility, but points to marginal production costs as setting long-term price curves and argues that the collapse in oil demand from progressive transportation policies would eliminate the need to produce the world’s highest cost barrels, such as Arctic and deepwater oil.