Government Subsidies Vital to EV Uptake

Although sales volumes of plug-in vehicles remain modest in most markets, there are signs that predictions that they will represent 100% of new car sales in Europe by 2030 may not be as far-fetched as they sound.

According to the website, sales of plug-in vehicles in Europe in the first half of 2018 grew by 42% over the same period last year, to 195,000 units, and the plug-in share of the European light vehicle market increased to 2.2% in June and 2% for the first half-year.

Many factors contribute to the uptake of EVs, such as consumer familiarity with the technology, a decrease in the cost of lithium-ion batteries and, consequently, in the upfront purchase price of EVs, the expansion of charging networks and public policy (several countries have announced plans to ban the sale of ICE vehicles by 2030), as well as, to a lesser degree, a spike in the price of gasoline. However, an essential element in the growing EV market is the menu of subsidies and other incentives national and local governments in Europe (and, of course, in China and the US) are implementing to help shape consumer demand.

No other country is offering more generous incentives than Norway. Purchasers of purely electric vehicles in Norway are exempt from import or purchase taxes as well as the 25% VAT, which reduces the upfront price of the car by about half. Yet, that’s not all – they also get a pass on road taxes, tolls and municipal parking fees and pay reduced ferry prices for their EVs.

The Guardian daily newspaper has published calculations by the chief engineer of Norway’s Institute of Transport Economics, Erik Feigenbaum, comparing the pre- and post-tax costs of an imported VW e-Golf 36kWh with the petrol-fueled Golf 1.2L. The e-Golf costs £28,285 ($37,257) before taxes, compared to £19,867 ($26,169) for the Golf 1.2L. After taxes, the prices are, respectively, £28,285 and £30,699 ($40,437). In addition, because of the exemption from road tolls and taxes, as well as the significantly lower cost of charging versus fueling, the e-Golf is more than £3,000 ($3,951) a year cheaper to run.

According to the Norwegian Electric Vehicle Association (NEVA), nearly three-out-of-four Norwegian purchasers of EVs are motivated by money, compared to just one in four who buy a plug-in for environmental reasons. NEVA also forecasts that 45% of all Norwegian new car sales in 2018 will be battery EVs and that, at the current pace, the country will meet its goal of 100% by the declared target date of 2025 – if the government maintains its EV-friendly policies. “The Norwegian EV-market got a head start due to a predictable and stable policy framework,” the Association declares, and calls on other Nordic countries to formulate similar policies.

In its Nordic EV Survey 2018, NEVA found that the sticker price of an EV is the primary barrier to uptake in Nordic markets. Christina Bu, NEVA’s secretary-general, is quoted on the website as saying: “This difference is striking evidence that incentives such as reduced fees, lower VAT, free parking and toll road passage are primary reasons for choosing an EV. EVs are not yet able to compete with internal combustion engines on sticker price. Policy intervention is therefore needed.”

According to the annual car cost index published by the British leasing company LeasePlan, Norway is currently the only European country where the cost of owning an EV is lower than ICE-vehicle ownership. It’s little wonder, then, that the EV market share in Norway’s is by far the largest in the world, at 39%, followed by Iceland, at 11.7% and Sweden, 6.3%.

Several reasons are behind Iceland’s EV rapidly growing uptake rate, including its small size (so EV range is not an issue), low electricity prices and high urbanization but the government has also put in place a robust subsidy policy. For example, vehicles emitting up to 80g of CO2/km are exempt from import excise duties and low-emission vehicles are offered VAT exemptions or significant discounts. As a result, the upfront price of an EV or plug-in hybrid (PHEV) is about the same as that of a comparable internal-combustion vehicle and less expensive than a comparable diesel-powered vehicle.

In addition, municipalities offer other financial incentives, such as free charging and time-limited free parking in the capital Reykjavik. As a result, according to a survey by the MMR market research company, 42% of Icelanders who are planning to purchase a new car in the next three years say they will buy an EV.

In the Netherlands, which is planning to phase out all ICE vehicles by 2035, it is cheaper to own an EV than a comparable diesel-powered car, with petrol-engine vehicles only slightly cheaper. The Dutch have accomplished this by exempting fully electric vehicles from paying both purchase and ownership taxes and reducing the company car tax to 4%, instead of the usual 22%. PHEVs are also exempt from the purchase tax but must pay 50% of the ownership tax and the full company car tax.

As a result, sales of full electric vehicles grew by 136% in the first quarter of this year, compared to the same period in 2017, and market share more than doubled, to 2.9%.

Although EV market share remains low in France, sales of plug-in vehicles continue to grow, with a 20% year-on-year increase in plug-in vehicle registrations in the first trimester of 2018. To encourage EV purchases, the French government offers a number of incentives, such as an “environmental bonus” of €6,000 ($7,053) and a “thank you” grant of €4,000 ($4,702) to anyone swapping a diesel vehicle bought before 2016 for a fully-electric vehicle. The grants for swapping an old diesel for a PHEV total €3,500 ($4,114).

In addition, fully electric vehicles and PHEVs receive either a 50% discount on the ownership tax or are exempt from the license plate tax, depending on the province and fully electric vehicles are exempt from the company car tax.

In Germany, EVs are exempt from the annual motor vehicle tax for 10 years from the date of registration, and the government is offering an environmental bonus of €4,000 for the purchase of pure electric and fuel-cell vehicles and €3,000 for plug-in hybrids. However, the granting of an environmental premium spurred a controversy in December 2017 when the German Federal Office for Economic Affairs and Export Control (BAFA) excluded the Tesla Model S from the bonus because it suspected the manufacturer of subsidy fraud, then reinstated it in March of this year, only to demand in July that the 800 people who purchased a Model S before March 6 return the bonus because the car’s sticker price before that date exceeded the €60,000 eligibility limit.

While embarrassing to Tesla as well as costly, since the company (which has appealed the decision) has pledged to compensate its customers, the controversy does raise an important argument against EV subsidies – that giving money to the well-off consumers who purchase an EV disadvantages the less affluent whose taxes fund the subsidies. The €60,000 price limit was implemented to counter that objection.

This is also the declared motive behind Norway’s plans to trim its generous EV subsidy policy, which would primarily target cars weighing more than two tons, such as the Tesla Model X sports utility vehicle. In announcing the proposal, Norway’s Environment Minister Vidar Helgesen said that EV subsidies were introduced to encourage the purchase of small, domestically produced electric cars, rather than luxury imports.

While vital to EV uptake, subsidies and other financial incentives are only part of what is necessary to grow the electric vehicle market, the International Council on Clean Transportation (ICCT) says. “Accelerating the transition to electric requires a comprehensive suite of actions,” an ICCT report proposes. “National policies spur electric vehicle investment, deployment, and availability. Consumer incentives ensure that electric vehicles are affordable in the near term, as their costs continue to drop. Governments and utilities are helping to build out the necessary charging infrastructure to ensure the convenience of electric vehicles is fully realized. Local policies especially are increasing awareness that electric vehicles are here today and offer substantial benefits to consumers.”

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