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Global Economy

Who can still hope for the environmental bonus

The number of electric cars on German roads has been growing for years. Government subsidies have also played a large part in this. From next year, however, the amount of the premiums will be reduced – and with it the subsidy pot. If this is empty, there should be no more financial support. What does this mean for potential buyers?

Demand for electric cars is increasing

More and more people are buying an electric car in this country. According to the German Association of the Automotive Industry (VDA), between May 2021 and May 2022 an average of 57,000 vehicles per month were newly registered. For comparison: In the whole of 2019 there were just around 6000 more. Sales almost doubled in the past year. According to a study by the Boston Consulting Group, the curve could soon become even steeper.

As early as 2025, almost 40 percent of all cars sold could be purely battery-powered, and by 2030 even two thirds. According to the Federal Motor Transport Authority (KBA), it was 13.5 percent in the first half of 2022. At least 167,263 battery electric cars hit the streets, 12.5 percent more than in the same period of the previous year. Even if there was a small minus in June compared to June 2021 – demand remains high.

E-car premium compensates for high acquisition costs

"Various factors are contributing to the ramp-up: On the one hand, the variety of models is much greater, so that almost every need can be covered – from small cars to SUVs," explains ADAC spokeswoman Katrin van Randenborgh in an interview with On the other hand, the uncertainties about electromobility have decreased and electric cars have become more everyday-friendly. "For a long time, consumers' greatest concern was suddenly getting stuck on the route with their e-car," says the expert. In the past five years, however, vehicle ranges have doubled, and progress has also been made in the charging infrastructure.

A big plus was the subsidy for electric cars. "We assume that the majority of buyers also opted for an e-vehicle because of the high level of funding," emphasizes van Randenborgh. Electric cars are relatively expensive to buy. The premiums could have compensated for a large part.

The German e-car funding includes the environmental bonus introduced in 2016, which consists of a state share and a manufacturer share, as well as the innovation bonus. This was supplemented in 2020 and doubled the state share again. Depending on the list price of the model, buyers of a battery-powered car have so far received up to 9,000 euros, owners of plug-in hybrids up to 6,750 euros.

Promotion decreases and is capped

But now the subsidies are being reduced, as the Federal Cabinet officially decided on Wednesday. From 2023, according to the Federal Ministry for Economic Affairs and Climate Protection (BMWK), the subsidy for cars that cost less than 40,000 euros will drop from the current 6,000 to 4,500 euros. For cars that have a net list price of 40,000 euros to 65,000 euros, there will only be 3,000 euros instead of the previous 5,000 euros. The subsidy rates relate to the federal share, consisting of the environmental and innovation bonus. Manufacturers will continue to take an additional share; however, it is not yet certain how high this will be.

From January 1, 2024 onwards, the state purchase premiums are to be further reduced to 3,000 euros – but only for cars that cost a maximum of 45,000 euros. There will then no longer be a state premium for more expensive vehicles. A funding cap is also planned. A total of 3.4 billion euros are available from the Climate and Transformation Fund (KTF) for the next two years. 2.1 billion are planned for 2023 and 1.3 billion for the following year. Once the money is gone, the funding ends.

It remains to be seen to what extent the cuts will affect demand for electric cars. "The good news for consumers and the traffic turnaround is of course that the funding will continue," says ADAC spokeswoman van Randenborgh. Up to the end, an abolition had also been in the room. Finance Minister Christian Lindner (FDP) wanted to completely eliminate the purchase premium. That's off the table for now.

Planning difficult for buyers due to long delivery times

And yet: "The lower the subsidy, the greater the problem of high acquisition costs. One of the incentives to buy an electric car falls a bit short," says van Randenborgh. Another disruptive factor for the market ramp-up is the uncertainty as to the amount of funding potential buyers can actually expect. "With the currently long delivery times for e-cars, consumers find it difficult to plan." The new regulation makes a huge difference, especially for those who had factored in the high subsidy of up to 9,000 euros.

In fact, predictability can become a problem for consumers. Because buyers of electric cars do not receive the subsidy when the purchase contract is concluded, but only when the vehicle is registered. The time in between can be long. The surprisingly high demand, fragile supply chains as a result of the Ukraine war and the ongoing lack of chips currently require patience when it comes to delivery – especially for popular models.

With 7587 new registrations, the Hyundai electric model Kona 2021 was in third place among the best-selling electric cars. However, prospective buyers currently have to wait a long time for the Korean car. Hyundai writes to "For individual new orders, the delivery time for the Hyundai KONA Elektro is from six months." It is difficult to make an exact forecast of how things will continue.

ADAC demands grandfathering

Hyundai is not alone in this. According to an evaluation by the comparison portal Carwow, the e-car delivery times are between two and 20 months. There is even an order freeze for Germany's most popular model, the Fiat 500 Elektro, with 11,278 new registrations last year. According to Carwow, the delivery time for Tesla's Model 3, in second place on the popularity list, is six to nine months. Buyers have to wait at least a year for the ID models from VW.

The ADAC therefore advocates reserving the funding. "We demand that there be grandfathering for those who have already ordered a vehicle and could count on the high premium," says van Randenborgh. In addition, the full amount should be approved at the time of the order in the future. Payment can then be made upon approval to prevent abuse. "As soon as you get clarity there, there is a good chance that electric vehicles will continue to be in demand."

It still seems unclear when an application will be approved under the new modalities. According to media reports, however, it can be heard from coalition circles that the time when the car is handed over should be retained. This is what the BMWK writes in the press release: "The date of the application for funding, which requires vehicle registration, should remain decisive for funding in the future." For consumers, in addition to the amount, the question arises as to whether the money is generally sufficient – or whether applicants will get nothing if the pot is empty.

Funding for 2023 is apparently sufficient – for the time being

ADAC expert van Randenborgh cautiously gives the all-clear: "We expect that roughly 460,000 vehicles can be funded with the 2.1 billion euros." Around 356,000 e-cars were newly registered in 2021. This means that the budget for the environmental bonus applications should probably be sufficient for the coming year. "In 2023, everyone who can register an electric car should still get the funding."

With regard to the positive development of sales figures and the further decrease in funding, however, things could look tight in 2024. In coalition circles it was pointed out that from 2023 plug-in hybrid vehicles would no longer be funded and that this money would therefore be saved. According to the responsible Federal Office of Economics and Export Control, as of July 1, 2022, a total of more than 1.3 million applications had been submitted for the environmental bonus – around 741,000 of them for purely electric vehicles and around 576,000 for plug-in hybrids. The funds for 2022 amount to five billion euros.

On the other hand, van Randenborgh considers it unlikely that potential buyers can still count on the increased subsidy that will only apply this year. "Then you would have to look around the market very carefully and take what is available. The model, color or size shouldn't matter." If a car is reconfigured or ordered instead, the consumer can probably forget the full 9,000 euros.

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