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German car stories, part two: Electric dreams up in smoke

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No doubt, the German car industry has been at the forefront of the industry since 1886, when Carl Benz received the patent for his “Patent Motorwagen”, effectively the first automobile.

 

In the past year, Volkswagen’s cheating software damaged the sector’s reputation, but sales are still solid. At the beginning of the week, BMW announced some very strong quarterly figures (see Reuters on the release here), while VW had to report a plunge in profits.

 

Volkswagen, however, still sold more cars than the previous “world’s largest automaker” titleholder Toyota (see WSJ) and three weeks ago, Daimler came out with positive surprises similar to those of BMW (see Bloomberg).

 

This cornucopia of good news, however, does not hold true for German electric car sales. Say “cars” and wherever you are, German giants like BMW, Porsche, Mercedes-Benz, and Volkswagen come to mind.

Say “electric cars”, on the other hand, and it’s Tesla (and Toyota when it comes to hybrids).

 

In order to boost electric car sales (and hopefully German ones), the Angela Merkel-led “Big coalition” decided to pay out subsidies in May. The first data on the plan’s success, however, show that sales are moving very slowly.

 

Everybody buying an electric car can receive €4,000 in subsidies (for hybrid models the sum is €3,000). Half of this payment is financed by the government and half by the auto industry.

 

Subsidies were to be paid until €600 million in government funds had been spent and were intended to last until 2019 at the latest. Up to 300,000 cars could be subsidised (at Berlin’s share of €2,000 each) over a maximum period of 42.5 months (starting retroactively with purchases from May 18, 2016).

 

On average, this means the programme has the capacity to subsidise 7,000 cars/month.

 

Data just released by Bafa, however, show that up until the start of August, buyers (or lessees) only posted applications for 1,791 cars (of which 1,194 are purely electric and 597 are plug-in hybrids). This means that the government has only had to pay out €2.388m for electric cars and €0.895m for hybrids.

 

The table below shows which producers were most sought-after. Note that Tesla is not on the list since no subsidies are paid for cars costing more than €60,000. (Find here a list by Bafa over all cars that one can get subsidised.)

If applications continue to come in at this pace, equalling subsidies of €1.3m/month, it would take 38 years for the programme’s coffers to empty. This is hardly feasible for a scheme intended to get quick results.

 

(Some German media have calculated a maximum duration of 14 years, not taking into account that retroactive applications for purchases made since May 18, 2016 are possible – however, even that is a long time!)

 

One should be aware that the statistics only disclose application numbers, but some applications might be not be registered the same month the purchase took place. Therefore the monthly calculation does not necessarily mirror the exact number of newly registered electric and hybrid vehicles.

 

We will get a clearer picture at the end of this year.

 

In any case, one can reasonably doubt that these subsidies (and additional ones in the form of tax reductions) help to boost the sale of electric cars to any significant degree. By way of comparison, last year saw 12,363 electric and 33,630 hybrid cars newly registered in Germany (including those that for whatever reason did not qualify for subsidies, for example because they were too expensive).

Are such programmes innately flawed? Not necessarily. Norway, for example, proves that radical measures can work. There, all electric cars can use bus lanes, are exempted from excise taxes on cars, and hence the Nordic country has become the one with most Teslas per capita (according to the Wall Street Journal).

 

One could argue that it would not make sense for a country as Germany to copy the Norwegian model, as (for example) electricity production in Norway is mainly emissions-free hydroelectric power, which is not at all the case in Germany.

 

The future will show whether electric cars will move into the German mainstream, and whether German carmakers will improve their offerings (Mercedes has just announced that it will be doing just that, says Bloomberg).

 

Such improvements should be the main reason behind electric car purchases, as it comes with less market distortion.

 

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