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The German government and the country's automotive association, VDA, have agreed to double the Umweltprämie ('Environmental Bonus') - cash incentives for electric vehicles - as the country attempts to speed up the move away from the combustion engine and reduce emissions. The move came on the same day that Germany's largest car maker, Volkswagen, began production of a new electric vehicle.

The deal agreed by government and the VDA shows a significant increase on previous subsidies. For EVs costing up to €40,000, subsidies will rise from €4,000 to €6,000. There will be a €5,000 subsidy for EVs costing more than €40,000. Subsidies on plug-in hybrids costing up to €40,000 will rise from €3,000 to €4,500. Unlike the previous subsidies regime, the incentives will also apply to vehicles costing over €60,000.

The measure, which comes into effect later this month, has also been extended until the end of 2025 and is designed to aid Germany's transition towards sustainable mobility.

Chancellor Angela Merkel gave a speech earlier this week at VW's Zwickau factory to mark the start of mass production of its ID.3 electric car. “We can now say that Zwickau is a pillar of today’s German auto industry and of its future,” Merkel said at the launch. “Our task as politicians is to create a framework where new technological innovations can take hold.”

Frau Merkel also announced that the government would invest a further €3.5-billion until 2035 for the construction of EV charging stations around the country. She said that Germany needed one million such stations by 2030 and called on the automotive sector to play its part in helping to build the necessary infrastructure.

Merkel's government has been under increased pressure to do better in curbing greenhouse gas emissions after repeated reports of disappointingly slow progress.

The German Chancellor said that the challenges facing the industry represented "a paradigm shift in mobility that has never been realised in automotive history". Her Climate Protection Programme 2030, unveiled in September, sets a target of 10 million electric cars on German roads by that year, a goal which has been described as unrealistic by most automotive experts even with generous subsidies.

It remains to be seen, however, how many German customers will make the switch to EVs in a country with a rich and proud automotive heritage. Also, even with the subsidies, the cost of a electric car remains well above that of a comparative combustion-engine powered car, due to higher development and battery costs.

Germany has a current fleet of 420,000 electric vehicles, out of a national total of 47 million and despite the enormous change that would need to happen to hit the targets, the government's move has been widely welcomed.

Klaus Rosenfeld, CEO of German automotive supplier Schaeffler AG, said: "I see this as an absolute chance to now increase demand, which will be good for us. Anything that helps to achieve this mobility transformation, to increase consumer demand, is good for us so in that sense we welcome the decision made today."

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