The New German Incentive Scheme for Electric Cars – Really EUR 4,000 in May?

To boost electric car sales in Germany, the government last week presented a new initiative, proposing incentive premiums of EUR 4,000 for all-electric cars and EUR 3,000 for plug-in hybrids. The initiative was presented after a high-level meeting at the Chancellery between several ministers and car industry representatives. The project is still on the political level, so that several details of this e-mobility initiative still have to be worked out. As half of the premium shall not be paid by the government but by (participating) car manufacturers, we still have to see who will pay the premium, and whether commercially the premium will be only half of the politically announced figure.

1. Background

Germany still has a long way to go to reach the government’s goal of having 1 million electric cars on German roads by 2020. As progress towards this e-mobility goal has been slow and as electric cars are becoming more and more relevant internationally, the German government was eager to do something about it. While reports talked about an “agreement” with the “auto industry”, we are really at the political level, without as yet legally binding agreement or existing legislative proposal.

2. Participants

The meeting at the Chancellery was attended by Chancellor Angela Merkel, Chancellery Minister Peter Altmaier, Energy Minister Sigmar Gabriel, Transport Minister Alexander Dobrindt, Finance Minister Wolfgang Schäuble, Research Minister Johanna Wanka and Environment Minister Barbara Hendricks.  The car industry was represented by Volkswagen, Daimler and BMW.

3. Key Elements

Based on the (limited) amount of information available, the government and (parts of) the automobile industry agreed on a new support scheme using premiums for electric cars. Key elements are

  • The Federal Government and “the auto industry” shall each contribute EUR 600 million.
  • All-electric vehicles shall receive EUR 4,000, plug-in hybrids EUR 3,000.
  • The incentive shall apply to cars used in business or privately.
  • The incentive premium shall only be paid for vehicles with a net list price of up to EUR 60,000.
  • The premium is subject to the condition that the particular automobile manufacturer participates in the funding scheme. Daimler, Volkswagen and BMW have reportedly already confirmed their participation.
  • The premium is expected to support 400,000 cars.
  • To improve the charging infrastructure the Federal Government shall provide EUR 300 million:
    • Of which 200 million euros are designated to fast charging infrastructure and 100 million to the normal charging infrastructure.
    • This shall lead to 5,000 additional quick charging stations and 10,000 normal charging stations.
  • An additional EUR 100 million shall be provided to bring the share of electric cars in the federal car fleet up to at least 20% electric cars.
  • If the employer pays for the electricity to charge the car, this shall not be considered taxable income.

4. Legal Questions

The government press releases do not go into detail on the amount of legal review that has already gone into the proposal. European state aid law is an obvious area of relevance. The European Commission in July 2015 approved EUR 33 million aid for charging infrastructure used by electrical vehicles in the Netherlands. The Commission considered the Green Deal for Publicly Accessible Charging Infrastructure Scheme notified by the Kingdom of the Netherlands and decided to consider the aid to be compatible with the Treaty on the Functioning of the European Union (TFEU). Any discrimination of certain cars or manufacturers would need a sound justification. Another potentially relevant area will be whether or to what extent other car manufacturers will join the scheme.

The EUR 60,000 car price limit may prove to be contentious due to its discriminatory character. If CO2 reduction is really a relevant factor to encourage e-mobility, it is not at all obvious that a political desire not to support luxury cars is a convincing justification. After all, replacing a conventional luxury or sports car with an all-electric luxury or sports car would clearly lead to substantial CO2 reductions. At least for PV panels on roofs, there is no limitation how big your panels can be. Support for solar power on roofs is not limited houses below a certain (roof) size.

5. Next Steps

The government is planning to have the Federal Cabinet formally decide on the proposal in May. Afterwards, buyers shall be able to apply for the premiums. The premiums shall be administered by the Federal Office for Economic Affairs and Export Control (BAFA). It is not yet clear how the government intends to get the proposal through the parliamentary process, and by when. The politically declared start date of May appears quite ambitious.

Sources: Press release BMWi, Federal GovernmentFocus

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