Germany’s €3-billion BEV subsidy for lower incomes will also impact fleets

The abrupt scrapping by the previous Socialist-led government of chancellor Olav Scholz, at the end of 2023, is widely blamed for a major dip in BEV sales in Germany, Europe’s largest car market.

Reverse shock
This new scheme, devised under current Christian-Democratic chancellor Friedrich Merz, has the ambition to apply a reverse shock to the BEV market, and kick it back into higher gear – helping both the German car industry to sell its product domestically, and lower-income German consumers, who will get a significant subsidy for purchasing a BEV.

According to preliminary reports, the incentives will amount to up to €4,000 for new BEVs under €45,000. Significantly, used BEVs will be eligible as well. Also, the income cap for eligibility is reported to be in the region of €40,000 to €45,000 gross per year. Precise details – including which vehicles are eligible – will follow when the decision is concretised in an implementing decree.

Social equity
Germany’s previous federal EV subsidy, the Umweltbonus, was introduced in 2016, required co-funding by OEMs, and cost the German government around €10 billion until its abolition in 2023. While it is credited with boosting BEV sales, its abrupt ending created an ‘affordability gap’, especially for lower-income households, which led to a BEV bust.

When the new measure closes that gap again, will have equally noticeable effects on the market:

Targeting lower and middle incomes and explicitly including used EVs will likely increase demand for affordable, lower-priced EVs and accelerate turnover of leased cars returning to the used market. That should raise liquidity and buyer confidence in the second-hand BEV market.

The vehicle price cap and income eligibility, both relatively low, make this a more redistributive programme than previous, wide-open subsidies. That helps social equity, but denies direct support to buyers of high-end EVs.
This package also is a show of support for the German (and by extension European) car industry, shoring up domestic sales in the face of Chinese competition and trade uncertainties.

Manufacturers may respond by adjusting list prices to slot more models beneath the price cap, or by reintroducing (or increasing) their own co-contributions to maintain attractive net prices. Dealers and OEMs may also promote certified used EV programmes to capture the used-EV subsidy demand.

Leasing and TCO models

Evern though it is not aimed specifically at company fleets – Germany did announce a set of measures focused on corporate BEVs earlier this year – a package of this size is certain to have an impact on corporate mobility policies and strategies. Any change in used-EV supply and RV support, as this measure is sure to cause, will affect leasing and TCO models – which will need to be updated.

Additionally, the German government is considering a social leasing offer, as in France, in its package of measures to make BEVs more attractive to lower-income households. If implemented, this will oblige fleets who offer employee vehicle schemes to redesign their contracts and schemes to at least mirror those social-leasing terms.

A rise in overall BEV volumes will also affect the need for charging, which includes charging at the office. Infrastructure will need to be re-evaluated and if necessary, re-optimized.

Finally, the measure will lead to a rise in the range of lower-priced models, as OEMs adjust their prices or their own purchase subsidies to optimise the effect of the government incentives on their sales – giving fleet managers a wider price range of BEVs to choose from for their drivers.

It should be noted, however, that the German government has not yet finalised and published the precise details of the incentives’ terms and conditions. Most buyers (and fleets) will delay any relevant decision until the implementing rules are known.