Germany’s electric vehicle subsidy program started Tuesday with up to $7,000 available to buy an EV or plug-in hybrid. The big winner will be China, although the locals will now be able to lease a small, electrified vehicle for less than $60 a month.
China, despite the European Union imposing import tariffs of up to 45.3%, is still finding it easy to compete with its European competition, such is its superiority in manufacturing efficiency and battery technology.
Germany’s EV subsidies range from €1,500 ($1,700) to €6,000 ($6,965) for an EV or a plug-in hybrid and are retroactive to January 1, 2026. The level of subsidy depends on household income and the number of children in a household. There is no price cap and vehicles made outside of the EU qualify, but households with incomes over €90,000 ($105,000) a year don’t. Plug-in hybrids need a minimum electric-only range of 50 miles. German media reckons the budget will last for between 3 to 4 years, or about 800,000 vehicles.
According to Schmidt Automotive Research founder Matt Schmidt, this will result in some impressive bargains for German consumers. Volkswagen’s ID. Polo, which starts at €24,955 after tax ($28,970) could be cut to €18,955 ($22,000) and the BYD Dolphin Surf’s €18,990 ($22,000).
“The Leapmotor TO3 (listed at around €15,000 ($17,400) before subsidies) becomes available for just €50 ($58) per month, or almost the equivalent of a typical monthly mobile phone bill, with the subsidies covering the deposit,” Schmidt said.
Leapmotor is a Stellantis affiliate.
Not surprisingly, this will boost sales of EVs and PHEVs, according to investment bank UBS.
Subsidies and high gasoline prices
“German EV sales (PHEV and BEV) have already grown 32.9% year to date, and we see the trend potentially accelerating in the coming months, given the combination of subsidies and high gasoline prices,” UBS said in a research note.
“German (manufacturers) are likely to be the biggest beneficiaries. (It will benefit) mass market rather than premium, due to the household income cap of €90,000, but as there is no differentiation between (manufacturers), the Chinese could also take a meaningful share,” UBS said.
Germany finds itself in a quandary. Its major automakers like Volkswagen and its Porsche and Audi subsidiaries, BMW and Mercedes have made huge profits in China over many years.
Volkswagen started selling in China in the mid-1980s and the rest followed. But in recent years the Chinese auto industry has been gradually learning the lessons from European and U.S. manufacturers. German market share there has been sliding, while Chinese manufacturers are making serious incursions into Europe, led by EVs and PHEVs.
Juggling act
The Germans still have a valuable market in China, but if its government decided to curb Chinese sales in Europe, it might have unpleasant implications for the profits there of premium manufacturers like Audi, Porsche, BMW and Mercedes.
Schmidt said German Chancellor Friedrich Merz has to perform a difficult juggling act to keep German industry in China on favorable terms, while leaving the door open to Chinese business in Germany. German consumers have been reluctant to buy foreign sedans and SUVs but this may be changing.
“Chinese (manufacturers) have so far largely stayed away from the patriotically driven German market, but that could change from this afternoon. German subsidies opened the door to Tesla half a decade ago, and it could risk the same happening again,” Schmidt said.
The German subsidy regime has coincided with the launch of new EVs from local manufacturers, like the VW ID. Polo and Skoda Elroq. Skoda is a VW subsidiary.
“However, the timing fits well with new VW models coming to market, such as the ID. Polo priced below €25,000 ($29,000) before subsidies in base LFP trim will likely also be a beneficiary and help VW on its weak pricing position over the last 24 months, as it was forced to reduce prices of its BEV models to hit CO2 regulatory fleet targets,” Schmidt said.
The EU has mandated a falling level of carbon dioxide emissions levels, reducing by almost 100% by 2035.
France offers EV subsidies of up to €6,000 ($7,000) but excludes most Chinese sales. Italy has a subsidy package worth up to €11,000 ($12,800). Britain’s Zero Emission Vehicle grant provides up to £3,750 ($5,000). Spain’s subsidies peak at €7,000 ($8,100).
