Sales of electric vehicles (EVs) in Germany have plummeted, dropping almost 37% in July 2024 compared to the same month the previous year.
One of the main reasons dates back to mid-December 2023, when the German government gave less than a week’s notice before ending its electric vehicle subsidy program. The program offered drivers small incentives (up to around €6,000) for purchasing new battery electric cars and plug-in hybrids.
The end of the subsidy program is not the only factor contributing to the EV slowdown in Germany, but the abrupt cancellation certainly had an impact: While many countries in Europe have seen stable or increasing sales of new EVs over the past year, sales in Germany have fallen. . And it’s not just Germany that is ending these subsidy programs. Sweden and New Zealand have also ended their schemes and have seen a slowdown or drop in sales as a result. This all comes at a time when the world needs to intensify its efforts to transition to zero-emission vehicles and remove fossil fuel-powered vehicles from the streets to address climate change.
Experts now warn that ending these support systems too soon could jeopardize progress on climate. As EVs enter the mainstream, the question for policymakers is how to decide when the technology is ready to stand on its own — something that will likely vary by market.
Money can be a powerful tool for persuading people to adopt a new technology. “Cost is the biggest factor,” says Robbie Orvis, senior director of modeling and analysis at Energy Innovation, a policy research firm specializing in energy and climate.
The government’s toolbox for supporting new technologies includes economic incentives, standards and rules, and support for research and development. Generally, a mix of these elements is the most effective for driving new technologies, says Orvis.
Economic incentives can make new technology cheaper or make existing technology more expensive. Either way, they help level the playing field in the early stages of developing a technology, says Orvis. This pattern occurred with solar energy — the cost of solar panels has fallen 90% compared to a decade ago, thanks in part to government programs that subsidized their production.
Eventually, as the new technology scales, costs should come down to the point where incentives are no longer needed, and other tools such as mandates can be turned to, he says.
Electric vehicles are being produced in much larger numbers and are much closer to the cost of gasoline-powered cars than they were a few years ago, but there is still a difference in starting price.
Today, the cost of owning an EV over its lifetime is comparable to the cost of a gasoline car. However, electric vehicles generally have a higher initial price and provide savings over time with cheaper maintenance and operation. Gasoline cars may be cheaper at first, but they come with higher maintenance and fuel costs over time.
To fill this gap, governments around the world have been encouraging buyers to purchase EVs by offering subsidies that make the initial price difference negligible.
Many EV markets in the West have plans for future mandates, with some coming into effect in about a decade. The European Union, along with some US states, will require all new vehicles sold to be zero-emission by 2035. The question is when governments can safely end the subsidy programs.
The German government announced in December 2023 that it would stop subsidies for EVs, with almost immediate effect. The measure came after the country faced a budget crisis. Germany had already invested €10 billion for 2.1 million electric vehicles since 2016, and the announcement declared the program a success.
This abrupt change contributed to a drop in EV sales in the country in the first half of 2024, according to an analysis by the European Transport and Environment Federation.
The end of subsidies for EVs in Germany came too soon, says Peter Mock, regional leader for Europe at the International Council on Clean Transport. Most manufacturers are still far from reaching the emissions targets they must meet by 2025. The drop in EV sales raises questions about whether manufacturers will be able to meet those targets in time, and some in the auto industry are questioning loudly whether these goals are achievable.
Electric vehicles have become much more common on roads around the world, but are still a minority option in most markets, accounting for 18% of new vehicle sales globally in 2023.
The German EV market is at an early and somewhat delicate stage. Electric vehicles accounted for just over 20% of new vehicle sales in Germany before the incentives ended in 2023. This point, explains Mock, lies in what many economists call the “abyss,” which separates early adopters (who are generally willing to spend more) than majority consumers.
Ending a subsidy program will almost always have an impact on sales. Even if EVs were significantly cheaper than gasoline cars, if a large incentive were removed, there would likely be a drop in sales, says Energy Innovation’s Orvis. “People still care about cost,” he adds.
Take Sweden, which ended incentives for EVs at the end of 2022. The country saw an immediate drop in sales from December 2022 to January 2023, but the market has stabilized. One reason: the transition there was significantly more advanced, with about 35% of new vehicles sold being battery electric by August 2024. If we include plug-in hybrids, the share of plug-in vehicles reaches almost 50%. Because the market was more advanced, there wasn’t as much concern that the country would see a major stall in the transition to zero-emission vehicles, says Mock.
One potential way to address concerns about the cost of subsidies is to combine them with taxes on existing technology. These programs are sometimes called “feebate” and work by adding a fee to a high-emissions vehicle while providing a subsidy for a low-emissions one, explains Mock.
Each country, and even each region within a country, will have its own unique transition to a new mode of driving. “Every market needs to be convinced,” says Robbie Andrew, a senior researcher at the Center for International Climate Research in Norway, who compiles data on EV sales.
A key factor for policymakers in each area should be the speed at which subsidies are withdrawn, Mock says. Giving manufacturers and consumers a firm timeline in advance can ensure the shock to the market is less dramatic. Reducing support slowly over time may also be better than cutting a subsidy to zero all at once.
The German government is already taking steps to improve declining EV sales. In early September, the government agreed to measures that would allow companies to deduct part of the value of electric vehicles from tax consideration.
Reducing momentum now when it comes to EV adoption probably won’t doom the technology, but it could be a major setback. And ultimately, what matters is not just that the world adopts technologies to reduce emissions in the transportation sector — the speed at which we do so will have huge implications for climate change. The more we drive polluting vehicles, the more emissions will end up in the atmosphere. And the higher these pollution levels, the more we will feel the effects of a warming world.
( fonte: MIT Techonology Review )
