The German government will double current subsidies to 6,000 euros ($ 6,720) for electric cars that cost up to 40,000 euros ($ 44,800), according to the CDU of Chancellor Angela Merkel. Total incentive increases to 9,000 € ($ 10,080) when current manufacturers’ contribution is included.
Prospective car buyers will also benefit from a temporary sales tax cut in the country to 16% from 19%.
The incentives are part of a comprehensive package of 130 billion euros (145 billion dollars) that was approved by the German government late on Wednesday.
Asked about the incentives on Thursday, German Finance Minister Olaf Scholes said it was part of a wider effort to help the climate. “This is about renewable energies. This is about all climate activities necessary to reach [carbon] Neutral Economy in 2050. We must start now. ”
The total stimulus package is 4% of the country’s annual economic output. When combined with previously announced spending and tax exemptions, the total amount of Germany’s emergency incentives has now reached 14% of GDP.
The incentives could spur the efforts of German automakers including Volkswagen to manufacture and sell more electric cars. Volkswagen, which also owns Audi, Porsche, Seat and Skoda, plans to spend 33 billion euros ($ 37 billion) on electrical development by 2024, expanding into new business areas including charging infrastructure and battery production.
The global auto industry has already suffered a two-year drop in sales before a coronavirus pandemic broke out, forcing factories and dealers worldwide to close. Sales fell off a cliff this year, and there is little sign of a major recovery.
“The industry is in a dark cellar, and although it managed to climb again a few steps, there is as yet no indication of light,” says Klaus Vollrabi, head of opinion polls at Ifo.
However, electric cars can act to recoil. The European market for hybrid electric and hybrid cars grew 72% in the first quarter of 2020, according to research firm Canalys. Vehicle categories now make up over 7% of all new cars delivered on the continent.
Chris Jones, chief automobile analyst at Canales, said “surprising” results for electric vehicles would have been better if not due to the epidemic’s disruption. Going forward, new German subsidies and the introduction of electric versions of already popular models should help this trend, according to Canalys.
Germany’s new stimulus package was larger than analysts had expected. In addition to electric vehicle incentives, it includes funds for green investments, tax exemptions, and exemptions for families with children.
“After five years of fiscal surpluses and a low German public debt ratio … the package shows once again that Germany is ready and able to spend when this is important,” said Holger Schmiding of the Bank of Berlin.
Nadine Schmidt, Fred Plettgen and Mark Thompson contributed to the reporting.