Some countries are ending support for EVs. Is it too soon?

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Some countries are ending support for EVs. Is it too soon?

By Casey Crownhart | MIT Technology Review | September 23, 2024

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Sales of new electric vehicles in Germany have plummeted, dropping nearly 37% in July 2024 from the same month one year ago.  One of the main reasons traces back to mid-December 2023, when the German government gave less than one week’s notice before ending its subsidy program for electric vehicles. The program had given drivers small grants (up to around €6,000) toward the purchase of new battery-electric and plug-in hybrid cars.

It’s not just Germany ending these subsidy programs, either. Sweden and New Zealand have also scrapped their schemes and seen a resulting slowdown or drop in sales. This all comes at a time when the world needs to dramatically ramp up efforts to move to zero-emissions vehicles and pull fossil-fuel-powered ones off the roads to address climate change.

Experts are now cautioning that ending these support systems too soon could jeopardize progress on climate change. As EVs continue to enter the mainstream, the question facing policymakers is how to decide when the technology is ready to stand on its own—something that will likely vary in each market.

The end of German EV subsidies came too early, says Peter Mock, regional lead for Europe at the International Council on Clean Transportation. Most manufacturers are still far from the emissions targets they’re expected to hit by 2025. The sales slump for EVs raises questions about whether manufacturers will be able to hit those targets on time, and some in the auto industry are loudly raising doubts over whether the targets are feasible at all.

Germany’s EV market is in an early, somewhat delicate place. Battery-electric vehicles made up just over 20% of new-vehicle sales in Germany before incentives ended in 2023. This point, Mock explains, falls at what many economists call the chasm separating early adopters (who are often willing to spend more) from majority customers.

Take Sweden, which ended EV incentives at the end of 2022. The country saw an immediate slump in its sales from December 2022 to January 2023, but the market has roughly leveled out. One reason: The transition there was significantly farther along, with roughly 35% of new vehicles sold being battery-electric in August 2024. If you lump in plug-in hybrids, the share of plug-in vehicles is nearly 50%. Because the market was farther along, there’s not as much concern that the country will see a major stall in moving toward zero-emissions vehicles from fossil-fuel ones, Mock says.

One potential way to address concerns about subsidy cost is to pair them with fees on the incumbent technology. These are sometimes called feebate programs, and they work by adding a fee to a high-emissions vehicle while providing a subsidy for a low-emissions one, Mock says. 

The German government is already taking steps to improve its falling EV sales. In early September, the government agreed on measures that would allow companies to deduct part of the value of electric vehicles from tax consideration. 

3 key takeaways from the article

1. Sales of new electric vehicles in Germany have plummeted, dropping nearly 37% in July 2024 from the same month one year ago.  One of the main reasons traces back to mid-December 2023, when the German government gave less than one week’s notice before ending its subsidy program for electric vehicles.
2.  It’s not just Germany ending these subsidy programs, either. Sweden and New Zealand have also scrapped their schemes and seen a resulting slowdown or drop in sales. This all comes at a time when the world needs to dramatically ramp up efforts to move to zero-emissions vehicles and pull fossil-fuel-powered ones off the roads to address climate change.
3. Experts are now cautioning that ending these support systems too soon could jeopardize progress on climate change. As EVs continue to enter the mainstream, the question facing policymakers is how to decide when the technology is ready to stand on its own—something that will likely vary in each market.

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Topics:  Environment, Electric Vehicles, Germany, European Union