Automotive News Europe — 2026-01-26
Automotive Industry
Germany’s revived electric vehicle subsidy program may end up strengthening Chinese automakers’ position in Europe’s largest car market rather than helping domestic brands — a move that could deepen the competitive challenges facing Volkswagen, BMW and Mercedes-Benz.
Industry experts warn the €3 billion incentive program risks creating market distortions that benefit importers while leaving German manufacturers vulnerable to the same demand collapse that followed when previous subsidies ended in 2023.
Germany’s latest coalition government believes the subsidy program for EV buyers will boost sales in Europe’s largest car market, where demand was flat in 2025.
The subsidy program, worth €3 billion, is enough for about 800,000 cars and targets small and middle-income earners, namely private households with a taxable annual income of up to €80,000. The government will provide subsidies through 2029, paying between €1,500 and €6,000 per car purchase, depending on the vehicle’s powertrain and a family’s size and earnings.
In 2023, the German government scrapped a previous EV subsidy scheme, which resulted in a 27 percent decline in battery-electric vehicle sales in 2024.
This time, the policy includes extended range EVs and vehicles made in China. In addition, plug-in hybrid electric vehicles are eligible for reduced subsidies (up to €4,500) until mid-2027, providing they emit less than 60 grams of CO2 per kilometer and have an electric-only range of more than 80 km.
The incentives apply to all eligible EVs registered since Jan. 1, 2026, with the application portal expected to go live in May 2026.
Short-term gain, long-term pain?
Experts says the purchase incentives are likely to boost EV sales in Germany. Benjamin Kibies, senior automotive analyst at Dataforce, predicts that about 60,000 additional EVs will be registered in this year in Germany. The program will also support the industry in avoiding CO2 fines, targeted at cars with internal combustion engines that produce higher emissions, he said in an email reply to questions.
However, the subsidies will likely be just “a flash in the pan,” Stefan Bratzel from the Center for Automotive Management told Automotive News Europe. “It will generate momentum and growth which is not sustainable,” he added.
The subsidies will cause collateral damage “including backlash and erosion of residual values,” Kibies added. That is because subsidies negatively impact the regular flow of the market.
Sales of EVs slow down as buyers wait in anticipation of being able to get a better deal.
Buyers also rush to take advantage of the subsidies, pulling ahead a large portion of sales, leading to a steep decline in demand after the program finishes.
Kibies said this is problematic because “the EV market in Germany just got used to working on its own,” without the influence of temporary incentives.
BEV sales fell sharply after subsidies ended in 2024 but rebounded last year. The dramatic swings in demand result in unpredictability and fluctuating prices.
Helping the Chinese, not the Germans
Worse, the subsidy is seen as being primarily beneficial to Chinese EVs and not German brands.
“This is a crazy idea,” auto analyst Ferdinand Dudenhöffer told Automotive News Europe. “Who is winning? BYD or other Chinese carmakers, of course, and the likes of Peugeot and Citroen. But not the German carmakers. Instead of improving the competitive structure of the German car industry, we are inviting importers to sell EVs in Germany using taxpayers’ money.”
In Kibies’ opinion, it would have been better not to include plug-in hybrids in the new program. In terms of real driving emissions, hybrids currently provide only 15 percent CO2 reduction compared with an average gasoline or diesel car
The subsidy program is also expected to have a negative impact on the market for used EVs, which will only be attractive at significant discounts. Or, as seen during the last subsidy program, many of those EVs will be exported elsewhere.
“It should not be overlooked that used cars can also make an important contribution to strengthening electromobility and achieving climate goals. Therefore, the funding program should also consider used cars during the evaluation in 2027,” Hildegard Müller, president of Germany’s VDA auto association, said in an email reply to questions.
Experts argue that tackling electricity charging prices would have been a more efficient strategy. Making charging cheaper than refuelling would simultaneously help new and used EV sales, Kibies said. And “widening the angle, lower electricity prices would address one of the major obstacles against establishing battery production in Germany,” he added.
Several EV subsidies programs in Europe
Elsewhere in Europe, EV subsidies are being offered to customers in Italy, Spain, France, the U.K. and Romania.
In Italy, a new €597 million incentive package launched in October 2025 and schedule to run until mid-2026 was fully reserved within 24 hours of opening. The current program offers incentives of up to €11,000 but includes several requirements related to the buyer’s income, where the person lives and they type of car that is scrapped.
Spain introduced a €400 million subsidy scheme on Jan. 1, granting up to €7,000 for BEVs if an old vehicle is scrapped and up to €4,500 for BEVs without scrapping.
Romania’s government offers a subsidy for BEVs of about €3,500 while PHEVs qualify for a subsidy of about €3,000.
In the U.K., a £1.3 billion grant program, launched in mid-2025, provides direct purchase discounts for new EVs with a list price of less than £37,000.
In summer 2025, France extended its social leasing program to 50,000 EVs, with monthly leasing rates from €95 to €195 depending on the model offered to low-income households. This is thanks to a subsidy of up to €7,000 per vehicle, which is deducted from the monthly leasing cost.