The German coalition is reintroducing EV incentives in the country from January 2026, two years after purchase subsidies ended abruptly in Europe’s largest auto market.
The incentives aim to support low to mid-income households — earning up to around €60,000 annually — in purchasing zero-emission vehicles, most of which are still priced higher than petrol-powered cars.
The specific details of the upcoming package were discussed in the German parliament this Friday.
For instance, the Social Democratic Party (SDP) parliamentary group proposed that the incentive should have not only an income cap, but also a price cap of €45,000.
The conservative parties of the Union (CDU/CSU), however, see the price limit on the vehicles themselves as “secondary” when it comes to encouraging people to switch to electric cars.
The previous scheme imposed a €65,000 price limit for electric vehicles to be eligible.
The package will also include used electric vehicles, according to German media reports.
However, it only applies to fully electric cars, with plug-in hybrid models being out of the list.
According to Vice-Chancellor Lars Klingbeil, the government will allocate about €3 billion from the national Climate & Transformation Fund (KFT) and the EU Social Climate Fund to support low to mid-income households in acquiring zero-emission vehicles.
Klingbeil said the support would be granted either as a purchase incentive, similar to the “environmental bonus” that ended in late 2023, or as a social leasing incentive, as exists in France.
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 battery electric vehicles in the past two years.
Currently, Germany offers tax benefits and corporate allowances in EV purchases.
Electric vehicles registered by December 31 remain exempt from the vehicle tax for up to 10 years, however, the exemption can end as early as 2030.
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.
Previously to announcing that it would be financed through KFT and EU funds, the SDP 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 Union, 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.
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.”
“The Ministry of the Environment will ensure that this is the case,” Kluessendorf stated, adding that “the future is electric, and we want it to be written in Germany.”
Although the focus of these remarks was on European (especially German) vehicles, it is still unclear whether the incentives will be restricted only to cars produced by local manufacturers.
At the same time, several traditional automakers are questioning the European Union targets for zero-emissions in the next decade.
Specifically, the ban of petrol-powered vehicles by 2035 is being challenged by German-based automakers such as Mercedes-Benz and BMW, with executives urging the bloc to overturn the regulation.
Ola Källenius, CEO of Mercedes-Benz and President of the European Automobile Manufacturers’ Association (ACEA), called for a “reality check” in the Old Continent, adding that its auto market could “collapse” in the near future.
Last month, 235,528 vehicles were registered in Germany.
Battery electric vehicles (BEV) represented 45,495 units, accounting for a 19.3% market share — meaning that nearly one in every five vehicles sold in Germany is fully electric.
Electric vehicles are gaining a larger share of Europe’s biggest auto market, with its share growing 31.9% year over year in September.
