The auto industry in Germany has fully embraced electric vehicles (EVs), as is reflected by ambitious goals for its EV portfolio, sales target and battery industry expansion. The country has been accelerating efforts to bolster position in the global EV market. After committing last year to boost EV subsidies by 50% through 2025, the nation has doubled down on efforts toward green recovery in the wake of the COVID-19 pandemic.
Germany’s Chancellor Angela Merkel recently unveiled a €130-billion ($146 billion) stimulus package to pull the country out of the virus-led economic slump. Notably, the fresh aid comes on top of a 1.1-trillion euro stimulus agreed in March. With the latest COVID-19 recovery package, Markel unveiled sweeping incentives for electric cars.
Germany is not alone in backing EVs as part of post-COVID economic strategies. Last week, France announced an $8.8-billion aid package, which laid special emphasis on the ramp up of production and sales of EVs.
Germany Goes All In
Until 2018, Norway had been the biggest market for EVs in Europe. However, over the past couple of years, other European countries have been making efforts to catch up. The case in point is the heartland of the European auto market, Germany. The country, which had long been a sleeping giant to plug-in hybrids or green vehicles, finally woke up from slumber last year. The nation edged out Norway to become the biggest buyer of EVs in 2019, witnessing a 60% year-over-year increase in sales of both EVs and plug-in hybrid models during the year.
As part of Merkel’s Climate Protection Program 2030, Germany aims to put 10 million electric cars on the nation’s roads by 2030. Merkel has also set a goal of having a million electric charging stations across Germany by 2030. Major German auto giants like Volkswagen VWAGY, Daimler AG DDAIF and BMW AG BAMXF are focusing on radically electrifying their line-ups. While Volkswagen currently carries a Zacks Rank #4 (Sell), BMW and DDAIF are Zacks Ranked #3 (Hold) firms. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Recovery Package Backs Green Vehicles, Penalizes Gas Guzzlers
As part of the €130-billion stimulus, Germany is providing incentives to buyers of battery-powered EVs until the end of next year. While the nation is boosting incentives and cutting the sales tax on more fuel efficient vehicles, it is increasing taxes on gas guzzling SUVs and sports cars. As part of a broader effort toward a ‘green recovery’, the plan promises €2.2 billion ($2.5 billion) in EV subsidies and another €2 billion ($2.2 billion) for R&D spending by automakers and suppliers to promote electric cars.
Buyers of fully-electric cars with a price ceiling of €40,000 will be eligible for a grant of €9,000, one third of which will be funded by carmakers. Buyers of plug-in hybrids costing up to 40,000 euros will also get higher subsidies, with 4,500 euros from the government and 2,250 euros from automakers.
As part of the package, new car buyers will benefit from a lowered value-added tax of 16% from the earlier 19%. In sync with its eco-friendly car purchase incentive scheme, the government plans to reform the tax system to ensure that vehicles emitting more than 95 grams of carbon dioxide per kilometer will face heavy tax effective January 2021. ICE (internal combustion engine) vehicles that are not able to achieve more than 41 miles per U.S. gallon will not qualify for the sales tax cut.
The package also aims at fostering the creation of EV charging stations in as many locales as possible. Every gas station in the country needs to install EV charging stations. Ensuring that petrol stations will also have EV charging infrastructure certainly moves the needle, but will it be enough?
Per a report by Statista, petrol stations in Germany have been on the decline, down from more than 46,000 in 1970 to around 15,000 in 2019. As of March 2020, Germany had only 27,730 electric car charging stations according to BDEW. To make EV ownership viable for all, Germany needs at least 70,000 charging stations. With the latest plan setting aside €2.5 billion for the EV charging infrastructure, the move can significantly boost green vehicle adoption.
Who Wins, Who Loses?
Germany's auto industry failed in its bid to receive direct federal support for conventional car purchases as it undermines the nation’s climate protection goals. Resultantly, high taxes on highly profitable ICE sports cars and SUVs are likely to hurt the prospects of auto biggies.
The 9,000-euro incentive for EVs will exclude most of Tesla’s TSLA Model 3s, Model S and Model X. ExpensiveEVs like the Audi e-Tron, Mercedes EQC and Jaguar I-Pace are also unlikely to benefit.
Mainly less expansive pure-EVs such as the Volkswagen’s e-Golf hatchback and BMW X1 plug-in hybrid crossover will benefit from the stimulus. Green vehicles that are likely to get a sales boost include the BMW i3, Kia e-Niro, Peugeot e208, Renault’s Zoe, the Honda e, Hyundai Kona and Ioniq models, and the less pricey versions of the Volkswagen ID.3, which will go on sale in August. Per the government's list of eligible cars, Tesla's lowest-priced Model 3 just squeezes in at 39,990 euros.
The incentives could jumpstart efforts by German carmakers, including Volkswagen, to develop and sell more EVs. Volkswagen — which also owns brands like Audi, Porsche, SEAT and Skoda — plans to spend €60 billion ($66.3 billion) in the next five years on digitization as well as producing more electric and hybrid vehicles. BMW and Daimler are also pursuing their goal of completely emission-free driving with batteries or fuel cells.
The government stimulus is a boost to automakers that focus on EVs. However, if you are the developer and buyer of ICE vehicles, the latest development is likely to dig a hole in your pocket.
Is There Light at the End of the Tunnel?
German new-car registrations tanked 49.5% year over year in May amid coronavirus woes. In total, only 168,148 new passenger cars were registered, according to the automotive authority Kraftfahrt Bundesamt. While dealerships and factories have restarted with the relaxation of coronavirus-led lockdowns, the demand for cars remains muted.
Of the 168,148 new registrations in May, only 5,578 (or 3.3%) were battery-powered EVs. Germany's new stimulus package and introduction of electric versions of already popular modelsare expected to stimulate slow demand. However, it is not to be forgotten that EVs are still too much of a niche product to lift the overall auto market, especially amid weak consumer sentiment. Per Reuters, electric cars and hybrids made up for 1.8% and 6.6% of new passenger car registrations last year, respectively, in Germany. Meanwhile, diesel and petrol cars accounted for 32% and 59.2%, respectively.
Increasing EV incentives, ramp up of EV charging stations and high taxes for ICE vehicles are likely to boost demand for green cars. However, as ICE cars that form the bulk of new registrations have not been provided any incentive whatsoever under the new plan, overall auto sales growth in Germany amid economic slowdown and coronavirus mayhem remains questionable.
With green vehicles still being a miniscule percentage of cars sold, it will require exponential growth to bring about a true EV revolution in the nation and realize Merkel’s aim of 10 million electric cars on the nation's roads by 2030.
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