In a bid to encourage more people to opt for electric vehicles over petrol or diesel engines, the German government has for several years been doling out subsidies to car buyers. Now, however, the funding system is heading for a major shakeup: financial incentives are to be gradually reduced for electric cars, and switched off altogether for plug-in hybrid vehicles. 

German government to reduce subsidies for electric vehicles

According to a draft document put together by the Ministry of Economic Affairs, the German federal government will fundamentally reform the criteria according to which it gives financial incentives to promote the purchase of electric vehicles. 

As was provided for in the coalition agreement signed by the “traffic light” government last year, the subsidy rates for electric vehicles are to be gradually reduced between January 1, 2023 and 2025. Currently, subsidies of up to 9.000 euros are up for grabs for drivers in Germany, but this is to be reduced to around 4.000 euros in 2023 and 3.000 euros in 2024 and 2025. 

On top of this, the new plan would see funding for plug-in hybrid vehicles scrapped from the end of 2022. From January 1, 2023, only vehicles that have a “proven positive climate protection effect” will be eligible for funding - meaning pure electric vehicles, and not those that combine electric batteries with combustion engines.  

The fact that hybrids have been eligible for funding up until this point has proven controversial among environmental organisations, since they rely on combustion engines whenever the battery is empty - which in the eyes of some diminishes any potential climate benefit they bring. 

625.000 funding applications received last year

“We want to sharpen the focus in the future promotion of electric cars and focus more on climate protection,” said Robert Habeck, the Federal Minister of Economics. “In our opinion, plug-in hybrids are [now] marketable and no longer need public funding.” 

Last year, the Federal Office for Economics and Export Control received funding applications for around 625.000 vehicles more than twice as many as were received in 2020. “The funding is still at a high level and therefore interesting for consumers,” Habeck said. Electric cars are also treated favourably when it comes to vehicle taxes in Germany.

Habeck’s department’s proposals now need to be coordinated with the coalition government and submitted to the cabinet for approval.