Germany and France Ramp Up Electric Vehicle Incentives

Both Germany and France are increasing their subsidies for electric vehicles in their COVID-19 recovery packages. At a time when households and businesses are hurting from the coronavirus pandemic and related economic slowdown, these countries are picking which businesses to help using taxpayers’ funds, supposedly in the name of helping the environment by reducing carbon dioxide emissions. But in Germany, about 50 percent of its electricity is produced using fossil fuels—mainly coal (35 percent) and natural gas (13 percent), which emit carbon dioxide. France, on the other hand, generates over 70 percent of its electricity from non-carbon producing nuclear power.

Germany

Germany increased its incentives for electric cars by 50 percent and taxed SUVs with combustion engines as part of a €130 billion ($146 billion) stimulus package. Germany’s EV subsidy program is a bit unique in that those subsidies are shared by the auto industry. Last year, Germany’s subsidized electric cars costing less than €40,000 by €6,000 and electric vehicles between €40,000 and €60,000 by €5,000. Half of the €6,000 subsidy was paid for by the government and the other half by the auto industry. Germany is now adding €3,000 for electric cars costing less than €40,000— resulting in a government-funded subsidy of €6,000 and a total discount of €9,000 (about $10,000) when the auto industry’s contribution is included.

The electric cars starting at less than €40,000 in Germany include the following models:

• BMW i3
• Hyundai Ioniq Electric
• Hyundai Kona Electric,
• Kia Nero Electric
• Peugeot 208 Electric
• Renault Zoe
• Tesla’s Model 3

The VW ID.3, not yet in show rooms, has an expected starting price at €30,000 and will also receive the credit.

Besides increasing the subsidy for electric vehicles, Germany is also reforming its tax system to increase taxes on combustion engine vehicles starting next year.

France

The French government announced plans to offer generous incentives to buy an electric vehicle that provides up to €12,000 ($13,150), and is part of a €8 billion rescue plan for the country’s auto industry. Over 1.3 billion will be used as incentives to reduce the price of battery-electric vehicles by up to 40 percent in some cases. For example, a Renault Zoe that costs €32,000 would cost €20,000 when subsidies that consist of a €5,000 for scrapping an older diesel car and €7,000 toward buying a new electric vehicle are applied.

President Macron has an ambitious goal of one million electric vehicles produced annually in France by 2025. Renault and PSA Group have agreed to increase production—the full-electric version of the next generation Peugeot 3008 will be built in France and Renault is planning to produce two new electric vehicles by 2022.

The electric vehicle subsidies are designed to help increase domestic demand for electric vehicles. The French electric vehicle incentives include:

• A €7,000 subsidy, up from €6,000 for the purchase of a new electric vehicle costing up to €45,000 until the end of the year.
• A €5,000 subsidy for an electric vehicle for business and fleet buyers.
• A €2,000 subsidy for plug-in hybrids that cost up to €50,000 and have an electric range of at least a 50 kilometers.

French President Macron is designing the program so that working-class families can afford an electric vehicle. The buyer of a Renault Zoe who receives €12,000 in subsidy would have a €10,000 down payment and monthly payments of €200. It is estimated that there would be fuel savings of €400 a year, although much of this is tax savings since France and most European countries tax their transportation fuels so that their costs are almost three times as much per gallon as currently in the United States.  In addition, income limits to participate in the program will be relaxed so that 75 percent of French households will be eligible.

Between June 1, 2020 and the end of this year, the subsidy for buyers who turn in older vehicles is doubled to €5,000 if they buy an electric vehicle or plug-in hybrid (with at least 50 kilometers of battery range), and €3,000 for an internal-combustion engine car as long as it meets the newest emission standards. Half of the vehicles on French roads will be eligible for the scrappage program—generally gasoline cars registered before 2006 and diesel cars registered before 2011. The government is expecting to fund about 200,000 purchases for a total cost of €800 million.

In a specific example cited by the government, the owner of a 2003 gasoline powered small car could buy a used 2016 Toyota Yaris hybrid for €9,400, with a €3,000 trade-in bonus reducing that price to €6,400. The hybrid Yaris is expected to reduce fuel costs by €450 a year.

In a speech President Macron said: “Our fellow citizens need to buy more vehicles, and in particular clean ones. Not in two, five or 10 years—now.” Macron also said: “We need a motivational goal—make France Europe’s top producer of clean vehicles by bringing output to more than one million electric and hybrid cars per year over the next five years.”

Conclusion

Germany and France are picking winners in the automotive market in their coronavirus recovery plans by increasing subsidies on electric vehicles using money obtained from taxpayers. The German and French government leaders want to make electric vehicles affordable for working class families, despite whether an electric vehicle would meet their transportation needs.

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