Economic recovery packages in response to COVID-19: Another push for electric vehicles in Europe?

Italy is the latest country in Europe to announce greater financial aids for the purchase of new cars. It follows in the footsteps of France, Germany, Spain, and Austria, which launched similar stimulus packages to boost new car purchases and, as a result, the local automotive economy. This comes at a time where economies worldwide have been hit hard by the COVID-19 pandemic. Similar steps were taken in response to the 2007-2008 global financial crisis when a number of governments offered purchase premiums and replacement programs for new cars to help their shattered economies. But more than a decade later, the hope is not merely to revive the fragile economy by encouraging consumers to buy any kind of car. Rather, the countries hope to accelerate the transition towards electric vehicles, part of a strategy to reduce air pollution and mitigate climate change.

The French COVID-19 stimulus package includes an incentive of up to €7,000 (previously €6,000) when purchasing a battery electric vehicle (BEV) and a revived bonus for buyers of a plug-in hybrid electric vehicle (PHEV) of up to €2,000. The existing scrappage scheme has also been temporarily revised maintaining the maximum aid amounts but loosening the income limits between June and July 2020. The maximum scrappage aid is €5,000 for purchasers of a BEV or a PHEV with an electric range of more than 50 km. If buying a conventional car with carbon dioxide (CO2) emissions between 51 and 137 g/km as measured in the WLTP (gasoline car at least Euro 4, diesel at least Euro 5) the scrappage bonus is up to €3,000. For low-income consumers, the combined purchase and scrappage bonus can be as high as €12,000 if purchasing a BEV.

The German government doubled the incentives for BEVs and PHEVs as part of its recovery package to €6,000 and €4,500, respectively. The financial aids are complemented by incentives offered by the car industry of €3,000 for a BEV and €2,250 for a PHEV, totaling up to a maximum of €9,000 for a BEV (previously €6,000) and €6,750 for a PHEV (previously €4,500). The German recovery package does not include any subsidies for the purchase of a new gasoline or diesel car.

In Spain, two aid plans were adopted in June and July 2020 in response to the COVID-19 pandemic, each endowed with different amounts and not complementary. Purchasers of a new car can decide which program to utilize. One is the re-launch of the incentive program for efficient and sustainable mobility, called the MOVES II Program (programa de incentivos a la movilidad eficiente y sostenible). The program includes financial aids up to €4,000 for a BEV and PHEV with a minimum electric range of 90 km. Scrapping a car which is more than seven years old in favor of a BEV or PHEV results in a government incentive of up to €5,500. BEVs and PHEVs with a smaller range of between 30 km and 89 km can receive up to €1,900 without and €2,600 with scrappage. The financial aids are complemented with a €1,000 discount offered by the car manufacturers. The second scheme, called RENOVE 2020 Program (programa de renovación del parque circulante español en 2020), includes financial support for the purchase of electric as well as conventional cars with the obligation to scrap a vehicle older than ten years. Buyers of a BEV can receive up to €5,500, including a €4,000 governmental incentive and a €1,000 discount by the car manufacturers. An additional €500 is added for scrapping a car older than 20 years, for beneficiaries with reduced mobility, or households with an income less than €1,500. For purchasers of a PHEV, the maximum financial aid is €4,100. Purchasers of a combustion engine car with CO2 emissions up to 120 g/km according to NEDC (gasoline at least Euro 4 and diesel at least Euro 6) can receive a maximum bonus amount of €2,100.

The stimulus package of the Austrian government includes increased subsidy amounts from €3,000 to €5,000 for the purchase of a BEV, €2,000 of which is provided by car manufacturers, and from €1,500 to €2,500 for a gasoline-powered PHEV, half of which (€1,250) is contributed by the car manufacturers. Like Germany, the recovery package only applies to purchases of electric cars while purchasers of a combustion engine car receive no incentives.

Finally, in Italy, the latest country in Europe to announce a recovery plan, the bonus for the purchase of a BEV increases from €4,000 to €6,000, including a car manufacturer’s share of €1,000. If a car is scrapped that is at least ten years of age, the maximum support goes up from €6,000 to €10,000, including €2,000 provided by car manufacturers. The maximum amount for PHEVs is €3,500 without scrappage (previously €1,500) and €6,500 with scrappage (previously €2,500). Also, buyers of a Euro 6 standard gasoline or diesel car with emissions between 61 and 110 g CO2/km (as measured in the NEDC) receive a bonus of €1,750. If an older car is crapped, the amount doubles to €3,500.

The maximum amounts outlined above and shown in the figure (see Scribd file below) are subject to certain conditions which can include the purchase price of the new vehicle, the electric range autonomy of a car, the age of the scrapped car, the income of a household, and mobility restrictions of beneficiaries.

As shown in the figure below, without any financial aid, owning a BEV Volkswagen e-Golf (100 kW, 0 g CO2/km) would bear significantly higher costs than a comparable gasoline version (96 kW, 108 g CO2/km NEDC, 121 g CO2/km WLTP). With the increased bonus amounts on car purchases as part of the recovery packages, assuming no older car is scrapped and private ownership of the vehicle, the costs decrease significantly. Over a 4-year holding period and only taking into account one-time registration and annual ownership taxes, the cost advantage adds up to almost €4,000 in Germany and over €2,000 in France. In Italy and Spain, the benefit would be over €1,000. Purchasers of a BEV in Austria have almost no cost advantage over 4 years.

Figure 2

Against the odds, the electric passenger car markets in Europe has not collapsed since the outbreak of the COVID-19 pandemic. On the contrary, in March and April when mobility was most limited in many European countries, electric vehicles still recorded high registration shares, up to 12% in France and Italy, as shown in the figure below. Even with fluctuations over the past months, electric passenger car registrations recorded all-time highs. Up to the end of May, before the introduction of the first recovery packages, this was likely partially a result of more favorable taxes or cost benefits for electric vehicles in markets, as well as the introduction of tighter vehicle emission standards for passenger cars at the European level. Since June, electric passenger car shares have rebounded the most in France and Germany after a slight downfall since April 2020. Both countries introduced recovery packages for electric car purchases in June, which might have had a positive effect on consumer choices. Spain’s program MOVES II from June has not yet contributed to the recovery of the electric vehicle market and the effects of the stimulus packages in Austria, Spain (RENOVE 2020 Program), and Italy, introduced after June 2020, cannot yet be estimated.

The upcoming months will show how the adopted recovery packages will affect the electric vehicle market. And, it is likely that other governments will follow with similar recovery packages to boost the transition towards electric drives. In particular, a stimulus package for the United Kingdom, one of the largest passenger car markets in Europe, is still pending at this moment. Stay tuned for an update in the following months.

See the attachment text below to download the following figure.

Map of Europe showing EV subsidies