Some countries are ending support for EVs. Is it too soon?

Sales of new electric vehicles in Germany have plummeted, dropping nearly 37% in July 2024 from the same month one year ago.

One of the main reasons traces back to mid-December 2023, when the German government gave less than one week’s notice before ending its subsidy program for electric vehicles. The program had given drivers small grants (up to around €6,000) toward the purchase of new battery-electric and plug-in hybrid cars.

The end of the subsidy program isn’t the only factor contributing to Germany’s EV slowdown, but the abrupt axing certainly had an effect: While many countries across Europe saw steady or growing sales of new EVs in the past year, Germany’s sales fell. It’s not just Germany ending these subsidy programs, either. Sweden and New Zealand have also scrapped their schemes and seen a resulting slowdown or drop in sales. This all comes at a time when the world needs to dramatically ramp up efforts to move to zero-emissions vehicles and pull fossil-fuel-powered ones off the roads to address climate change.

Experts are now cautioning that ending these support systems too soon could jeopardize progress on climate change. As EVs continue to enter the mainstream, the question facing policymakers is how to decide when the technology is ready to stand on its own—something that will likely vary in each market.

Money can be a powerful tool to persuade people to adopt a new technology. “Cost is the main driver,” says Robbie Orvis, senior director for modeling and analysis at Energy Innovation, a policy research firm specializing in energy and climate.

A government’s toolbox to support new tech includes economic incentives, standards and rules, and research and development support. Generally, a mix of those things will be most effective at boosting new technologies, Orvis says.

Economic incentives can either make a new technology cheaper or make the incumbent one more expensive. Either way, they help level the playing field early on in a technology’s development, Orvis says. This pattern played out with solar power—the cost of solar panels is 90% lower than it was just a decade ago, in part because of government programs that subsidized their production. 

Eventually, as the new technology scales, costs should drop until the point when you don’t need incentives anymore and can instead turn to other tools like mandates, he says.

Electric vehicles are being produced in much greater numbers and are much closer in cost to gas-powered ones than they were just a few years ago, but there’s still a difference in the sticker price.

Today, the cost of owning an EV over its entire lifetime rivals the lifetime cost of a gas-powered car. However, electric vehicles often have a higher up-front price and deliver savings over time in the form of cheaper maintenance and operating costs. Gas-powered cars can be cheaper initially but bring higher maintenance and fueling costs over time. 

To bridge this gap, governments around the world have encouraged buyers to purchase EVs by offering subsidies that would make the initial price difference negligible.

Many EV markets in the West have plans for mandates in the future, with some kicking in roughly a decade from now. The European Union, along with some US states, will mandate that all new vehicles sold be zero-emissions by 2035. The question is when governments can safely sunset subsidy programs.

The German government announced in December 2023 that it would be halting EV subsidies, with virtually immediate effect. The move came after the country faced a budget crisis. Germany had paid out €10 billion for 2.1 million electric vehicles since 2016, and the announcement called the program a success. 

This abrupt change contributed to a drop in EV sales in the country in the first half of 2024, according to analysis by the European Federation for Transport and Environment.

The end of German EV subsidies came too early, says Peter Mock, regional lead for Europe at the International Council on Clean Transportation. Most manufacturers are still far from the emissions targets they’re expected to hit by 2025. The sales slump for EVs raises questions about whether manufacturers will be able to hit those targets on time, and some in the auto industry are loudly raising doubts over whether the targets are feasible at all.

Electric vehicles have become much more common on roads around the world, but they’re still a minority option in most markets, reaching 18% of new-vehicle sales globally in 2023.  

Germany’s EV market is in an early, somewhat delicate place. Battery-electric vehicles made up just over 20% of new-vehicle sales in Germany before incentives ended in 2023. This point, Mock explains, falls at what many economists call the chasm separating early adopters (who are often willing to spend more) from majority customers.

Ending a subsidy program will basically always have an effect on sales, though. Even if EVs were significantly cheaper than gas-powered cars, if you took away a big incentive you’d likely see a sales slump, Energy Innovation’s Orvis says. “People still care about the cost,” he adds.

Take Sweden, which ended EV incentives at the end of 2022. The country saw an immediate slump in its sales from December 2022 to January 2023, but the market has roughly leveled out. One reason: The transition there was significantly farther along, with roughly 35% of new vehicles sold being battery-electric in August 2024. If you lump in plug-in hybrids, the share of plug-in vehicles is nearly 50%. Because the market was farther along, there’s not as much concern that the country will see a major stall in moving toward zero-emissions vehicles from fossil-fuel ones, Mock says.

One potential way to address concerns about subsidy cost is to pair them with fees on the incumbent technology. These are sometimes called feebate programs, and they work by adding a fee to a high-emissions vehicle while providing a subsidy for a low-emissions one, Mock says. 

Each country, and even each region within the same country, will have its own unique transition to a new mode of driving. “Each market has to be convinced,” says Robbie Andrew, a senior researcher at the Center for International Climate Research in Norway, who compiles EV sales data.

One key consideration for policymakers in each area should be the speed with which subsidies are sunsetted, Mock says. Giving automakers and consumers a firm schedule in advance can ensure that there’s less of a dramatic shock to the market. Ramping down support slowly over time can also be better than cutting a subsidy to zero in one swoop. 

The German government is already taking steps to improve its falling EV sales. In early September, the government agreed on measures that would allow companies to deduct part of the value of electric vehicles from tax consideration. 

Taking our collective foot off the pedal now when it comes to EV adoption likely won’t doom the technology, but it could be a major setback. And ultimately, what matters is not only that the world adopts technologies to cut emissions in the transportation sector—the speed at which we do so will have massive implications for climate change as well. The longer we drive polluting vehicles, the more emissions will wind up in the atmosphere. And the higher those pollution levels, the more we’ll feel the effects of a warming world.