The German government will double existing subsidies to 6,000 euros ($ 6,720) for electric vehicles worth up to 40,000 euros ($ 44,800), according to Chancellor Angela Merkel’s Christian Democratic Union party. The total incentive increases to € 9,000 ($ 10,080) when existing producer contributions are included.
Potential car buyers will also benefit from a temporary reduction in the country’s sales tax to 16% from 19%.
The incentives are part of a comprehensive 130 billion-euro ($ 145 billion) package approved by the German government late Wednesday.
Asked about the incentives on Thursday, German Finance Minister Olaf Scholz said they were part of a broader effort to help the climate. “This is about renewable energy sources. This is for all the climatic activities that are needed to get to [carbon] “a neutral economy in 2050. We need to start now,” he told CNN.
The total stimulus package amounts to 4% of the country’s annual economic output. Combined with pre-announced spending and tax breaks, the total amount of emergency incentives in Germany has already reached a whopping 14% of GDP.
Incentives could start the efforts of German carmakers, including Volkswagen, to produce and sell more electric cars. Volkswagen, which also owns Audi, Porsche, SEAT and Skoda, plans to spend € 33 billion ($ 37 billion) on electrical development by 2024, expanding into new business areas, including infrastructure charging and battery production.
The global automotive industry had already suffered two years of declining sales before the coronavirus pandemic hit, forcing factories and dealers around the world to close. Sales have fallen sharply this year and there are few signs of a big boom.
“The industry is down in a dark cellar, and although it has managed to climb back a few steps, there is still no sign of light,” said Klaus Wolrabe, head of research at Ifo.
However, electric cars can power the rebound. The European market for electric vehicles and hybrids with additives grew by 72% in the first quarter of 2020, according to research firm Canalys. Both categories of vehicles already account for over 7% of all new cars delivered to the continent.
Chris Jones, chief analyst for the automotive sector at Canalys, said the “impressive” results for electric vehicles could be even better if not for the pause caused by the pandemic. In the future, new German subsidies and the introduction of electric versions of already popular models should help the trend continue, according to Canalys.
The new stimulus package for Germany was larger than analysts had expected. In addition to incentives for electric cars, it includes money for green investments, tax breaks and benefits for families with children.
“After five years of fiscal surpluses and a drop in Germany’s sovereign debt ratio … the package shows once again that Germany is ready and able to spend when it matters,” said Holger Schmiding of Berenberg Bank.
– Nadine Schmid, Fred Plaitgen and Mark Thompson gave reports.