A fateful decision for Spain: Another COVID-19 recovery package supporting electric vehicle uptake?

(Versión en español aquí).

A few days ago, the German government agreed to a €130 billion COVID-19 economic recovery package. A significant portion of that stimulus, about €8 billion, is earmarked for the automotive industry in Germany. Previously, President Emmanuel Macron announced a similar €8 billion COVID-19 support package for the automotive industry in France. Next in line is Spain, where a decision by the government about support for the automotive industry is expected any day.

The French and German programs include additional support for electric vehicles. In France, the purchase premium for battery-electric vehicles (BEVs) will increase from €6,000 to €7,000 for vehicles with a purchase price of up to €45k. Plug-in hybrid electric vehicles (PHEVs) will be newly eligible for a purchase premium of €2,000. In Germany, the government subsidy for BEVs will double from €3,000 per vehicle to €6,000 for vehicles under €40k, and from €2,500 to €5,000 for vehicles costing between €40k and €65k. For PHEVs the government subsidy will also double from €2,250 to €4,500 for vehicles costing up to €40, and from €1,875 to €3,750 for vehicles between €40k and €65k. In addition, manufacturers remain obliged to pay an additional purchase premium of €2,500 to €3,000 for BEVs and €1,875-€2,250 for PHEVs.

The German government decided to send an even stronger signal for a quick transition to electric vehicles by not including any purchase premium for combustion engine vehicles. Furthermore, it decided to strengthen the CO2-based portion of the vehicle ownership tax. In France, on the other hand, buyers of a new or used combustion engine vehicle can benefit from a conversion premium. However, this subsidy in France is capped at €3,000, is only available for low-income households, and is and limited to a maximum of 200,000 vehicles with emissions below 137 gCO2/km (in WLTP-terms) that replace a vehicle that is at a minimum 9-years-old. Although this policy will have a negative effect on the French vehicle fleet CO2 emission level, as we explain here, this effect is likely to remain limited.

These recent decisions will have a significant impact on consumer purchase decisions. The figure below shows the cost associated with buying a popular BEV, the VW e-Golf, in Germany, France, and Spain. It includes the purchase price of the vehicle itself, any purchase premiums provided by the national government and the manufacturer, as well as registration and ownership taxes for a 4-year holding period, in line with earlier assessments. It can be seen that costs for the vehicle only vary slightly (about €32k to €34k) between the three countries when ignoring subsidies. When subsidies are included, however, net costs are remarkably different, ranging from €23k in Germany to €27k in France and €33k in Spain. This is because in Germany a customer would benefit from €6,000 of government support, plus an additional €3,000 purchase premium from the manufacturer. In France, the government support amounts to €7,000. In Spain, the adoption of a national purchase premium for electric vehicles, the ‘Plan Moves II’, is pending. In comparison with a conventional gasoline-powered VW Golf, the BEV version – as of today – economically looks highly attractive in Germany, somewhat attractive in France, and quite unattractive in Spain.

To complete the picture, it is important to not only assess the purchase premiums for electric vehicles, but to also consider the level of taxation for combustion engine vehicles. The figure below summarizes the vehicle tax structure in all three countries, focusing only on national tax policies related to the CO2 emission level of a vehicle, leaving aside the purchase premium for electric vehicles provided by manufacturers in Germany and any regional measures. The figure takes into account the most recent government plans for France and Germany.

Figure 2.

It is obvious at first sight that France imposes a high tax on vehicles with high CO2 emission levels, increasing substantially above a threshold of around 150 gCO2/km. This ‘malus’ part of the French bonus-malus system helps to sustainably counter-finance any fiscal incentives for electric vehicles and, in addition, provides a further stimulus for vehicle owners to opt for low-emission vehicles. In Spain, taxes increase stepwise, currently starting with vehicles of 120 gCO2/km in NEDC-terms (145 gCO2/km in WLTP-terms), which may partly explain the popularity of hybrid-electric vehicles in Spain, which typically emit below this CO2 threshold. In Germany, while the government is planning to reform the vehicle tax more towards a French-like bonus-malus system, the tax rates currently under discussion for this reform are still very low in comparison (maximum of €4 per gCO2/km and per year) and would hardly have any steering effect.

Even before the most recent announcements of the French and German governments, the sales share of new electric passenger cars (BEVs and PHEVs) in France and Germany developed quite differently from the share in Spain. In line with an increase of the purchase premium for electric cars in January 2020, the market share significantly increased in both countries, from about 3% in 2019 to 8%-10% in January through April of 2020. In Spain, on the other hand, in absence of an electric vehicle purchase premium, the market share increased only slightly with the EU-wide CO2 standards for vehicle manufacturers coming into place in 2020 and remains at about 3% so far in 2020.

Figure 3.

With the recent decisions to increase support for electric vehicles in France and Germany, it is to be expected that sales of electric vehicles will continue to rise in both markets, further diverging from the much slower uptake in Spain. This is unless the Spanish government opts for a similarly strong push for electrification as part of its COVID-19 recovery package, making the upcoming decision a particularly fateful one for the country.