When might lower-income drivers benefit from electric vehicles? Quantifying the economic equity implications of electric vehicle adoption
The role of the used car market in accelerating equal access to electric vehicles
The electric vehicle market is gaining speed, particularly in Europe, where sales figures continue to break new records. Of the almost 1.36 million new electric passenger cars registered in Europe in 2020, 11% were either a battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV). The year 2021 is also off to a good start, with 14% of new passenger cars registered in Europe in the first two months of the year being electric. While the new electric car market is steadily gaining ground, the used market is still in its infancy.
In general, a new car is not in most people’s budget. In fact, high-income households purchase more new cars than low-income households. Take Norway as an example. In 2019, 31% of new cars were registered by the 10% of households with the highest incomes, while for the 10% of households with the lowest incomes the share was 0.6%. This disparity is much higher within the electric vehicle market. Looking again at Norway, 37% of new electric cars were registered by the 10% richest households in 2019 and only 0.7% by the 10% poorest Norwegian households.
More affordable, second-hand electric cars can help to serve the needs of a broader consumer group. But where do we stand right now with the used electric car market? Let’s have a look at Germany, the largest passenger car market in Europe by new sales. Over the past five years, registrations of used passenger cars (i.e., changes in ownership) were about twice as high as new car registrations, and were two and a half times higher in 2020 as shown on the left side of Figure 1. For the electric passenger car market specifically, the development looks a bit different. Here, new registrations dominate the used car market, as displayed on the right side of the figure. In 2020, they were 10 times higher. This is not a surprise due to the European Union’s tighter CO2 emission standards for new passenger cars since January 2020 and increased subsidies in Germany for the purchase of a new electric vehicle since mid-2020.
The development of the new-versus-used electric passenger car market is also reflected in registrations. In 2020, 14% of newly registered passenger cars in Germany were a BEV or PHEV. Their registration share in the used passenger car segment was significantly lower, at 0.6%. In the first quarter of 2021, new and used electric passenger car registrations stood at 22% and 0.9%, respectively.
Of course, the overall passenger car market has been developed over many years, while the electric car market is just evolving. Sales of electric cars in a certain year will likely only become visible in the used-car market after a few years. For leased company cars this will be in about 2 to 4 years, and for private purchasers in about 6 years, at least in Germany. So, the high uptake in 2020 will likely be reflected in the second-hand electric passenger car market starting at around 2023.
National and local governments can help support the purchase of second-hand used electric cars to bring them to everyone. One option is subsidies for used electric cars. While there are many subsidy schemes in Europe for the purchase of a new electric car, only a few countries have adopted financial incentives specifically for the purchase or lease of a used electric car. And this only in the recent past:
- The government of the Netherlands introduced a new subsidy scheme targeted at private individuals for the purchase of a new or used electric car in mid-2020. The one-time grants apply to small and compact BEVs with an original price between €12,000 and €45,000 and a range of at least 120 km. The subsidy amount for the purchase or lease of a used BEV is €2,000. There are also certain eligibility criteria for receiving the bonus. The car must be purchased from a car dealer; sales between private individuals are not eligible for a grant. In addition, the car must remain in the name of the subsidy recipient for a period of at least 3 years. Under current plans, the grant amount for the purchase or lease of a used BEV will remain the same until the program runs out by mid-June 2024 or when funds are exhausted.
- At the end of 2020, the French government introduced a €1,000 one-time grant for the purchase or lease of a used electric passenger car or van by private individuals. Already in 2008, the country had introduced a bonus for the purchase of a new electric car as part of its bonus-malus scheme. To be eligible for a used electric vehicle grant, the car must emit less than 20 grams of carbon dioxide (g/CO2) per km, meaning only BEVs and fuel cell electric vehicles are eligible. In addition, the car must be at least two years old from the time it was first purchased or leased and must be kept for at least two years. The grant scheme for used electric cars and vans is running from December 2020 to December 2021 under current plans yet might be extended when French assesses its annual budget.
- The German government incentivizes the purchase of used (second sale) BEVs and PHEVs not older than one year and driven less than 15,000 km. The governmental share of the one-time grant is equal to new cars i.e., a maximum of €6,000 for a BEV and €4,500 for a PHEV. To be eligible, the car must not have been previously used as a company car and must be kept for at least 6 months. In the case of leasing, the minimum holding period increases to 12 months for a leasing period between 12 and 23 months, and 24 months for leasing terms above 23 months.
Studies show that incentives in the form of rebates are particularly effective if they provide larger amounts to lower-income households. The French government has a conversion bonus for the purchase of a new or used low-emission vehicle (up to 137 g CO2/km, based on WLTP) in place with higher amounts for low-income households. Yet, a precondition to receiving the bonus is the scrappage of an older car. In addition, the conversion bonus also applies to combustion engine cars, although the purchase or lease of an electric vehicle is rewarded with a higher bonus amount. In the United States, California, Oregon, and Pennsylvania have adopted one-time grants for used BEVs and PHEVs targeting low-income residents specifically.
As the used electric car market is slowly evolving, providing incentives similar to those offered for new cars seems to be a crucial element to broaden up the market to a wider consumer group. Additional incentives for lower-income households can help serve an even broader market, guaranteeing equal access to electric vehicles beyond the rich. Of course, there are more policy options to help bring electric vehicles to lower-income groups such as electric carsharing schemes or the extension of the public charging infrastructure network in less affluent areas. We will see how the used electric passenger car market will evolve in the months and years to come and what governments will do to address a broader consumer group for a just transition to electric.
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