German EV Subsidy Cut Tesla & Mercedes Lead Compensation

German EV subsidies were suddenly ended, one of the biggest markets in Europe for electric vehicles (EVs), on December 31. Initially designed to bolster the adoption of electric cars, the “environmental bonus” offered up to €6,750 ($7,390) in incentives to buyers, split between the government and manufacturers.

Tesla and Mercedes-Benz Step Up

In response to Germany’s abrupt end of its EV subsidy, Tesla and Mercedes-Benz announced that they would cover the entire subsidy for German buyers until the end of the year. Tesla confirmed the termination of the government EV subsidy in Germany in a tweet, saying,

“We will compensate for the termination of the government EV subsidy in Germany for new Model 3/Y orders.”

This move is intended to boost sales and assist Tesla in meeting its ambitious 2023 target of selling 1.8 million vehicles, which will necessitate the sale of approximately 476,000 vehicles in Q4.

Tesla’s Strategy and Financial Impact

Before the subsidy program was terminated, Tesla had previously offered low-interest loans to entice German consumers to purchase. This strategic move is consistent with Tesla’s global sales goals but highlights the consequences of losing government support in key markets.

“To continue supporting the transition to sustainable energy, Tesla will compensate for the termination of the government EV subsidy in Germany for new Model 3/Y orders (starting December 18 for vehicles delivered by December 31). We will also maintain the manufacturer’s share of 2250€.…”

— Tesla Europe & Middle East (@teslaeurope) December 18, 2023

Mercedes-Benz’s Countermeasure

Following Tesla’s lead, Mercedes-Benz pledged to cover the manufacturer’s share of the subsidy until December 31 for orders placed in 2023. From January 1 onwards, they intend to cover the manufacturer’s share based on the originally planned 2024 subsidy amounts.

Volkswagen and Stellantis Follow Suit

Volkswagen and Stellantis also announced their intention to compensate for subsidies, with Volkswagen focusing on orders placed before December 15 and Stellantis pledging to fund the full subsidy until year-end. These collective efforts across automakers seek to mitigate the sudden loss of government-backed incentives.

Tesla and the German EV Subsidy Legacy

Since 2016, Germany’s EV subsidy program has distributed €10 billion in incentives, facilitating the purchase of 2.1 million electric vehicles. However, Tesla suffered setbacks in France after the country excluded the Model 3 from its subsidy program, limiting support to European-made EVs. Tesla’s Model Y, built in Germany, is still eligible for subsidies in France.

US Market and Tesla’s Evolving Tax Credit Eligibility

Changes to the federal EV tax credit are expected in the United States. Variants of Tesla’s Model 3 will no longer be eligible for the $7,500 federal EV tax credit beginning in 2024. Specific Model 3 variants and the Model Y and Model X will continue to be eligible for the full tax credit.

The sudden end of Germany’s EV subsidy program presents a challenge for automakers, but companies such as Tesla, Mercedes-Benz, Volkswagen, and Stellantis are quickly adapting by shouldering subsidies to maintain customer incentives. This shift highlights the delicate balance between government support and industry reliance, prompting automakers to navigate changing policies to sustain global EV adoption and sales.