The future is electric - or is it? | Business| Economy and finance news from a German perspective | DW | 03.12.2014
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The future is electric - or is it?

Electric car sales in Germany have all but ground to a halt despite the government's pledge to turn the home of Das Auto into the leading electric vehicles nation. Carmakers are blaming Berlin. So what happened?

The fourth progress report of the German National Platform for Electric Mobility (NPE) was supposed to be a milestone. After all, this year marks the end of the first of three phases meant to blast Germany to the top of the global electric car market by 2020.

That was the vision German Chancellor Angela Merkel presented in 2010, when, flanked by industry representatives and union leaders, she pledged that there would be one million battery electric vehicles (EV) driving on German roads within the next decade.

This so-called "pre-market phase" has come at a steep price for both industry and the government. Over the past four years, German carmakers have pumped 17 billion euros ($21.1 billion) into the development of electric mobility - backed by 1.5 billion euros worth of subsidies from the government. Today, interested buyers can choose between 17 different e-car models Made in Germany. Next year, a dozen more are expected to hit the market.

Far from the fast lane

The problem is, German buyers aren't biting. According to the progress report, just 24,000 electric cars are currently cruising around Germany - a far cry from the 100,000-goal set for 2014. NPE Chair Henning Kagermann has since tried to downplay the disappointment, calling the 100,000 a mere "ballpark figure" and "preferable to trying to read tea leaves." Still, it's a mixed picture, at best. Yes, Germany is currently the leading electric car supplier, and, yes, the US is presently the only market to offer a wider range of models. However, "we're mid-table, when it comes to being the market leader," Kagermann concluded.

Fortschrittsbericht der Nationalen Plattform Elektromobilität

The news could have been better

But even that seems like an overly generous assessment, compared to the progress made in other countries. In the US, 223,600 electric cars have been registered so far. In Japan, it's 88,500. And in Europe, it's two countries that don't even produce electric cars themselves that are leading the race - namely, Holland and Norway.

"But just look at how much more money their governments have invested," Kagermann said, trying to qualify the discrepancy. It's the price Germany has paid for failing to provide sufficient financial incentives, he argued. "Considering how little we've invested, Germany has come a very long way," he insisted.

Cash-back and tax breaks

What scares off potential buyers of electric vehicles the most is the price tag. To drive up sales, China, France and the US rolled out cash-back deals, while Norway and the Netherlands offered tax breaks. This translates into a 5,000 to 8,000-euro ($6,000 to 10,000) discount on a mid-range electric car.

Here in Germany, e-car proponents have been calling for similar incentives for years. So far, however, the government has refused to budge, favoring a balanced budget over boosting sales.

That could soon change, thanks to the shortcomings laid out in the report. "We always said that we're not going to reach this ambitious goal unless we put in place the right framework," admonished Matthias Wissman, President of the German Association of the Automotive Industry (VDA). The latest progress report made clear that this hasn't happened.

One of the main barriers, it noted, was the lack of charging stations. The report recommends private-public partnerships to strengthen and expand the infrastructure. It also advocates improving the cars' kilometer-per-range ratio.

"We realize that we have to keep investing," said Matthias Wissman. Industry leaders are aware that they're in it for the long haul and they're unlikely to see any return on investment in the short run.

Car allowance?

Hoever, it's not just the lack of proper infrastructure or sufficient driving range that's putting the brakes on sales. Above all, the report said, it's the lack of money-saving incentives. Instead of calling for cash-back deals, the NPE urges tax breaks on company cars, allowing drivers to write off their electric vehicles.

Wissman argued that such special amortization rules would dramatically speed up innovation. That's the VDA's conclusion after talking with fleet managers from several private companies, he said, adding that under such tax laws investing in e-cars would pay off after just three to four years.

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Going electric - bound to fail?

According to Henning Kagerman, tweaking write-off rules for company cars could jump-start sales of electric vehicles with such force that some 800,000 vehicles could hit German roads within the next five to seven years - half of which would be company cars. If things stay the same, the NPE warned, Germany would fall 500,000 short of its million-car mark.

In order to mitigate this worst-case scenario the government would have to accept shortfalls of 200 million euros in lost revenue, according to NPE estimates. In fact, it said the first 12 months would only cost the treasury 30 million euros. That's money the government can afford to do without, even at a time when funds are low, Wissman said. "It was the government that set the target at one million, so it's on the government to pull its weight," he said.

It's all about the battery

However, the NPE said lawmakers will have to do more than simply revamp the tax code. Through 2017, which marks the end of the "market start-up phase," the industry will have to pump at least 2.2 billion euros into research and development - half of which would have to come from taxpayers.

Among other things, this would help fund the future generation of batteries. This just a few weeks after Daimler announced that it's shutting down Germany's only factory producing the battery cells used for electric vehicles. The Stuttgart-based car giant said that batteries Made in Germany couldn't match the low price of Asian, especially South Korean, models.

But that's revenue German e-carmakers can't afford to pass up on in the long run, with batteries accounting for 40 percent of the vehicle's added value. Increasing competitiveness would require getting a head-start on the next generation of rechargeable batteries, which would operate on sulfur or lithium-air cells.

However, that won't happen without adequate funds. Currently, the US is pulling ahead in that race, said Wissmann, after Tesla recently announced plans to build a new battery factory, backed by Washington by as much as $1.5 billion.

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