A month after initial discussions in the parliament, the German coalition (SDP/CDU) has agreed to reintroduce EV incentives in Germany.
Exactly two years ago, purchase subsidies were abruptly ended in Europe’s largest auto market.
The incentives aim to support low to mid-income households in purchasing zero-emission vehicles.
The bonus has an income limit of €80,000 annually, with the limit increasing by €5,000 considering children in the household.
According to local media reports, the €3,000 subsidy increases by €500 for each child (although it is limited to two, at €1,000). Households with particularly low incomes can receive an additional €1,000.
The previous scheme imposed a €65,000 price limit for electric vehicles to be eligible. The new benefits are focused on the families instead.
Unlike earlier reports, which said that plug-in hybrids would be out of the list, the new purchase incentive will include both purchases and leasing of BEVs and PHEVs.
In October, BEVs totaled 52,425 out of 250,133 vehicles registered — making up 21% of the auto market.
The market share jumped 47.7% from a year ago.
The new incentives, subject to EU commission approval, are expected to begin from January 2026.
Funding
Vice-Chancellor Lars Klingbeil said last month that the government will allocate about €3 billion from the national Climate & Transformation Fund (KFT) and the EU Social Climate Fund to support the new incentives.
The reallocation of KFT and EU funds means that the subsidies will not enlarge the federal budget deficit, which has become a sensitive topic following a 2023 constitutional court ruling.
While speaking about the new incentives, SDP’s secretary-general Tim Kluessendorf noted that the important part of “designing the subsidy program is that it must benefit the German and European automotive industry in particular.”
Previous Incentives
Between 2016 and 2023, the ‘Umweltbonus’ provided support for EV purchases in Germany, having granted around €10 billion ($11.67 billion) in subsidies.
However, the German Constitutional Court ruled in 2023 that reinforced the ‘Schuldenbremse’ (debt brake) and said that shifting unused COVID-19 emergency funds into climate spending violated debt limits.
This ruling concerned the Second Supplementary Budget Act of 2021, which sought to transfer around €60 billion in unused borrowing authorizations, approved under the COVID-19 emergency suspension of the debt brake.
The Court ordered the legislature to secure alternative financing for any climate-related commitments that had already been made.
The purchase incentives ended abruptly in December 2023, and since then there were no governmental subsidies for individual BEV purchases in the past two years.
European Ban on ICE Vehicles
Before discussions in October, the Social Democratic Party of Germany (SDP), part of the coalition, had proposed imposing higher taxes (up from 1% to 1.5%) on automakers producing internal combustion engine (ICE) models.
The receipt would then be invested in electric mobility. However, this proposal was met with criticism.
According to the Christian Democratic Union of Germany (CDU), petrol-powered vehicles “make a significant contribution to the profitability of car manufacturers in Germany today and will continue to do so in the coming years.”
“Positive market control can be achieved without disadvantaging combustion engines,” they added.
At the same time, traditional automakers are questioning the European Union targets for zero emissions in the next decade.
Germany’s Chancellor Friedrich Merz (CDU) announced on Friday that he will request that Brussels scrap its strict ban on combustion engine cars and allow hybrid vehicles beyond its 2035 deadline.
He emphasized that the SPD, which had supported the ban under the previous coalition, had made a significant concession to his party.
“This is the key decision for the future of Europe as a centre of automotive manufacturing,” Merz said, adding that the “common goal should be innovation-friendly and technology-neutral regulation that reconciles climate protection and industrial competitiveness.”
The German auto industry is currently facing growing competition from Chinese companies, a challenge that is now spreading to suppliers as well as automakers.
According to BMW, the current EU ban on petrol-powered vehicles by 2035 “ignored market realities and jeopardised employment”, it said.
A few months ago, Ola Källenius, CEO of Mercedes-Benz and President of the European Automobile Manufacturers’ Association (ACEA), called for a “reality check” in the Old Continent.
