Germany’s new EV incentives focus on fleets, but ignore second-hand market

EV incentives matter. That became clear after December 2023, when the previous German government abruptly axed the Umweltbonus, which provided grants of up to €6,000 for the purchase of new BEVs (PHEV grants had been phased out earlier in 2023). EV sales dropped dramatically, and were down 37% year on year by July 2024.

Responsibility for Germany
Thanks to OEM rebates (most of which have now ended) and strengthening organic demand, the German EV market has showed signs of resilience over the last year and a half. However, as part of its ‘Responsibility for Germany’ package, the new coalition government led by Friedrich Merz wanted to further support the market, for two main reasons:

To redouble the efforts to achieve 15 million EVs on German roads by 2030
First launched in 2021, the target is seen as an important marker on the road to the greater ambition of achieving national climate neutrality for Germany by 2045 (and for the EU by 2050). However, as of January this year, there are just 1.65 million BEVs registered in Germany, no more than 3.3% of its 49 million passenger car fleet. At current rates, Germany will have closer to 10 million BEVs by 2030. The new measures are designed to reverse the 27% drop in BEV sales following the end of subsidies in December 2023.

To boost the economic fortunes of Germany’s car manufacturers
In the face of rising competition from cheaper Chinese EV brands, Germany’s traditional car manufacturers need all the help they can get in support of their own transition to BEV and PHEV powertrains. Incentives for the domestic corporate market will likely result in large orders for the German car industry’s own electric models. Automotive industry association VDA forecasts a 75% increase in new EV sales in 2025, driven both by stricter EU CO2 emission regulations and by the German government’s new incentives. In 2024, 381,000 new BEVs and 192,000 new PHEVs were registered in Germany, respectively 13.5% and 6.8% of the overall market.

The EV incentives announced by the Merz government, which would retroactively apply from 1 July 2024, will be tabled before the summer recess, with the aim of making it clear by mid-year that ‘Germany is moving forward’. The first tangible financial mechanisms are expected to go live in July. Here are some key provisions of the plan:

Accelerated depreciation
The government is introducing an ‘investment booster’ via an accelerated balance sheet depreciation allowance for electric cars, vans and trucks acquired between 30 June 2025 and 1 January 2028. The allowance is heavily weighted towards the first year, with businesses allowed to claim a writing down allowance of 75% in the first year, 10% in the second year, 5% in the two following years, then 3% and 2% in the following years. The aim is to stimulate fleet renewal and corporate EV adoption, with the accelerated depreciation (in technical terms ‘degressive AfA’) front-loading the tax benefits of EV purchases and thus making them more attractive.

One bone of contention: this rule applies to the owners of the assets. Corporates (and consumers) leasing BEVs will only benefit from it if the leasing companies pass it on in the form of lower lease rates.

Hildegard Müller, VDA President, said the new tax proposals sent important signals for investments in electromobility.

“The planned tax incentives for promoting electric cars can provide valuable and sustainable impetus for the market development of e-mobility,” she said, adding that company cars are an important driver of electric motoring in Germany, driving demand for new vehicles and creating a ready supply of used EVs at the end of their fleet lives. Müller also welcomed the fact that the incentives also apply to commercial vehicles, but she said the VDA believes: “The general tax framework for the leasing of electric vehicles should also be improved.”

Tax relief
The legislative package includes cuts in corporate tax and measures that lower the cost of electricity and energy, making EV charging and use more cost-competitive.

Additionally, the maximum price for EVs qualifying for favourable tax rules has been raised from €70,000 to €100,000, making higher-end models more accessible for businesses. Employees with BEVs that cost less than this threshold benefit from a reduced Benefit in Kind rate of 0.25% (compared to 0.5% above €100,000, and 1% for ICE vehicles).

Kerstin Andreae, Chair of the Executive Board of the German Association of Energy and Water Industries (BDEW), applauded the Government’s efforts to boost the economy, and said tax incentives have already proved to be successful in stimulating EV markets among Germany’s European neighbours.

“The transport sector needs effective incentives to save CO2 emissions,” she said. “The public charging infrastructure is already very well developed, now more vehicles are needed to use it.”

Support for SMEs and start-ups
Small and new companies can benefit from new funding lines, low-interest loans, and improved access to infrastructure financing, which will support innovation and investment in electric mobility and charging infrastructure.

Accelerated infrastructure expansion
The plan also includes simplified and accelerated permitting processes for renewable energy, hydrogen infrastructure, and grid expansions. This will allow for faster and future-proof expansion of EV (and hydrogen) charging networks, and lays the groundwork for decarbonizing long-haul heavy-duty freight transport.

Supply-side focus
The plan constitutes a major policy pivot from the previous incentive package. The Umweltbonus, abolished in 2023, focused on stimulating consumer demand for EVs. The Merz plan is more focused on supporting the supply side of the EV equation, with incentives for upgrading grids and charging infrastructure, and incentives for corporate fleets that will directly benefit local EV manufacturers.

While the plan will undoubtedly have positive effects on the new EV market, some analysts lament that it – typically, but critically – lacks attention for the used EV market, which is an equally important component of the transition to electric mobility.

“The German government has missed an opportunity to increase the attractiveness of used EV ownership”, says Dr Christof Engelskirchen, chief economist at Autovista Group. “An increase in new-vehicle supply without stimulating the demand for used models is not ideal.”

“Furthermore, stimulating EV leasing may increase new registrations to a level that used-car markets are unable to absorb in three or four years. That is an additional risk for residual values.”

Three-pronged approach
It’s not too late for the German government to stimulate the demand for used EVs, says Dr Engelskirchen. He suggests a three-pronged approach:

Bring down electricity costs: “The German government proposed a measure with this in mind as part of its recent 2025 coalition agreement. This needs to be implemented swiftly.”
Ramp up charging infrastructure: “Increasing competition in this space will help lower high electricity costs at public charging points. This can cost three times as much as at a private wall box.”
Disincentivise ICE ownership: “It’s not just about incentivizing EVs. Europe’s leading EV market, Norway, has already shown how increasing the cost of ICE ownership can work.”
Above all, Germany (and Europe) needs a coherent and transparent roadmap to full electrification. “The key is making the plans clear and comprehensible, so people can get on board with them. There is still a lot of consumer uncertainty about the transition to EVs, and whether it will actually happen. This is driving angst about making the electric switch.”

“As Germany recalibrates its EV strategy, the success of these measures hinges not only on their economic impact, but on their ability to build public confidence in the electric future.”