Germany is more than five years behind when it comes to electric powertrains

Emissions regulations, as well as energy prices and new car prices, have a major influence on the choice of a car’s powertrain. Political decisions at federal and EU level play an equally important role. The extent to which these factors come into play is reflected in the demand for new cars in Germany. 

1. Petrol, diesel, the diesel scandal

2015 marked the start of ‘Dieselgate’. Up until 2015, diesel had been gaining market share year on year. Then, between 2015 and 2018, there was a shift towards petrol vehicles. The decisive factors were emissions levels, regulations and regional driving bans resulting from contradictory regulations.

1. Comparison of market shares between electric and hybrid vehicles

From 2018, a new trend emerged. Now, petrol and diesel cars are losing ground simultaneously. This marks the start of the era of mild and full hybrids. Diesel continues to be shunned due to its emissions risks, whilst high fuel prices are making petrol cars less attractive to buy. Car manufacturers are following the trend and switching to more cost-effective hybrids. Good value for money marked the beginning of the hybrid trend, which continues to this day. 

Significant: the end of sales incentives for plug-in hybrids (PHEVs) at the start of 2023. One consequence was the somewhat undesirable slight rise in the market share of diesel and petrol cars. If you like: a politically driven renaissance of traditional internal combustion engines (see the blue curve in Fig. 2 from 2022 onwards) – and this, of all things, from a party that wanted to achieve the opposite. Politically, the end of the subsidy was also a statement aimed at portraying the plug-in hybrid as a kind of sham solution for electric mobility.

New car buyers are very sensitive to prices and political statements. It was not only the end of the subsidy that caused the sharp decline, but also the argument that plug-in hybrids are unlikely to be in high demand in Germany in the longer term. Buyers react to such signals, as a decision to purchase a particular powertrain variant has long-term implications for the value and resale price of the vehicles.  

1. Political influence at the end of the electric car ramp-up

Both powertrain types – plug-in hybrids and BEVs – symbolised the powertrain and mobility transition in Germany. With both, a market share of 31.4 per cent (= 17.7 per cent + 13.7 per cent) was achieved within the regulatory framework in 2022. Electric mobility seemed to be finding a new home in Germany, and enthusiasm was spreading amongst those interested in new cars. Infrastructure issues such as public charging points played no part. It was a continuation of Tesla’s strategy: emotive cars, Superchargers on motorways and good value for money. The trend continued until the ‘traffic light’ coalition government gradually phased out the environmental incentives. 

But it was not just the environmental incentives that made electric cars less attractive to new car buyers. Most recently, in October 2023, European Commission President Ursula von der Leyen made a high-profile public appearance, accompanied by significant media coverage, announcing that the planned ban on internal combustion engines in the EU by 2035 would be reviewed. ‘Saving the internal combustion engine’ became the industrial policy slogan of the FDP, ADF, CDU, CSU and BSW. It had become apparent that saving the internal combustion engine could win votes. So all the conservative parties rallied behind this cause. Synthetic fuels were widely discussed in public as an alternative, even though there were no sound and reliable facts available regarding either production or costs.

The effect on car buyers was evident. In H1 2024, the share of electric cars plummeted to 18.6 per cent. It will take some time to return to the 31 per cent figure recorded in 2022.

1. Germany is lagging behind by more than five years in terms of electric mobility

The main reason for the slump in electric car sales in Germany is the high price of BEVs and PHEVs. So if the price gap between internal combustion engine vehicles and electric cars can be narrowed, key conditions will be met to ‘get the wheels turning again’. On the political front, Economics Minister Habeck is attempting to do this through depreciation relief for electric cars. Whilst shorter depreciation periods do have an impact on purchasing decisions for company cars, this impact is limited. This measure has been used on several occasions in the past, usually when the expenditure side of the federal government’s budget is constrained. Shorter depreciation periods mean greater tax savings for businesses. However, these immediate tax savings are partly offset when the vehicles are resold – that is, when they become second-hand cars. If the residual values of the vehicles are low after around 36 months due to ‘accelerated’ depreciation and the vehicles are offered for sale on the second-hand car market, profits are made on resale, which are, of course, taxable. 

4.1. Annual growth of 10% expected for company cars due to accelerated depreciation (AFA)

In a simulation, we estimated this depreciation effect, assuming a very positive response from corporate customers. The assumption is that the annual market share of electric powertrains for company cars would increase by 10 per cent as a result of the accelerated depreciation relief.

Around 65 per cent of PHEV sales are to corporate customers. Registrations for car dealers were not taken into account, as these vehicles quickly enter the used car market, where they are predominantly purchased by private individuals.

The simulation shows that even in 2030, the ‘old’ level of 2022 will not be significantly exceeded. Faster depreciation therefore does not solve our ramp-up problem.

The development of market share based purely on the depreciation effect
4.2 Price effects on electric cars + depreciation

4.2. Price effect: electric cars + depreciation

However, an additional effect is significant in the market for electric cars: The trend in industrial prices for electric cars. The observation is that prices are converging, but not at breakneck speed, rather at a snail’s pace.  

Chinese electric cars in Europe

Electric cars from Chinese car manufacturers can play an important role in price trends. On the one hand, there are imports from China; on the other, there are CKD (Completely Knocked Down) operations, such as Leapmotor’s partnership with Stellantis in Tichy, or BYD’s factory construction in Turkey. Imports from China are being hampered by the EU Commission’s tariff decisions. This is slowing down the trend towards narrowing the price gap between electric and combustion-engine vehicles.

Establishing sales networks and building brand awareness for Chinese car manufacturers takes time in Germany. Consequently, only modest growth is expected in vehicle sales by Chinese manufacturers in Germany.

Slump in battery prices

Due to weak demand for electric cars in Europe and the US, there is a significant oversupply and overcapacity in battery materials, leading to a fall in battery prices. For instance, the price of lithium-ion iron phosphate cells has plummeted by a good 40 per cent over the last nine months.

Car manufacturers complain of poor capacity utilisation

There is currently significant overcapacity in the electric car sector. Tesla, for example, has production capacity for 2.4 million vehicles per year, although we estimate that around 1.6 million will be sold this year. There is also significant overcapacity at VW’s plant in Zwickau. This is leading to price concessions. 

Regulations on CO₂ emissions for new cars

Stricter CO₂ targets for new cars will come into force in the EU in 2025. To meet these targets and avoid fines, there needs to be an increase in electric car sales, which in turn requires price concessions. 

Better value for money in new electric car models

In addition to the arguments above regarding price pressure, the range of models on offer and vehicle characteristics, such as range, are continuously improving in electric cars.  

Conducting a simulation

For our simulation, based on the arguments outlined above, we assume an annual 10 per cent increase in the market penetration of electric cars driven by price pressure and new models. 

Conclusion: More than 5 years ‘lost’

Even with these very optimistic assumptions regarding the further development of electric mobility in Germany, there is a gap of more than 5 years between the last peak in 2022 and the years 2028 or 2027. 

Germany is falling behind on this major future issue of mobility. Much of this problem is caused by conflicting policy decisions and debates.