Tesla and a slew of automakers recently suffered a major blow in the European market after the German government abruptly ended the country’s electric-vehicle subsidies. With the German coalition government facing an increasingly dire budget crisis, government officials announced the end of the “environmental bonus” program several weeks earlier than planned.
Like several other nations, Germany plans on electrifying its transport network to cut down greenhouse emissions and mitigate climate change. However, electric vehicles are so expensive that the majority of consumers cannot afford to purchase them outright, especially without the aid of government subsidies and incentives.
The German government has now ended its electric vehicle subsidy of up to $4,909 just a few days after it announced that it would not continue the EV subsidy at a reduced $3,273 rate next year. Businesses lost access to the EV subsidy as of Sept. 1, 2023, and it was limited to private drivers for several months until the government finally discontinued it.
Prospective EV drivers in Germany now have no choice but to buy battery electric vehicles (BEVs) at full price. Germany isn’t the first European Nation to limit government subsidies for electric-vehicle purchases. France limited its subsidies of up to $7,636 to electric cars manufactured in Europe earlier this month, locking out foreign-made models such as the Tesla Model 3, which is manufactured in China. The Model Y still qualifies for the French subsidy because it is manufactured at the Berlin-area facility. Even so, the loss of subsidies will undoubtedly impact Tesla as France and Germany are its largest markets in the EU.
The EV pioneer may also be looking at reduced sales in the United States once Inflation Reduction Act tax credit restrictions kick in on Jan. 1, 2024, and lock out the base Long Range and Rear Wheel drive Model 3. These restrictions would require EVs to source their battery components domestically or from allied nations to qualify for electric-vehicle subsidies.
Tesla currently uses LFP batteries sourced from Chinese battery maker CATL in the base rear wheel drive Model 3, and the long-range Model 3 uses batteries from South Korean companies that source their raw materials and components from China. While Tesla will work to secure alternative EV battery suppliers, the automaker will most likely see a slump in sales in the near future.
Increased competition in China has also forced Tesla to engage in a price discount war with local automakers. In addition, record interest rates coupled with high prices have depressed EV demand globally, and experts predict further declines in EV demand if EV prices don’t drop significantly.
For companies such as Workhorse Group Inc. (NASDAQ: WKHS) that are looking to tap the European market, things just got a little tighter, and they may need to rely on other strategies to lure buyers.
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