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Why Germany Is Behind in the Race for Electric Cars

By Tom Hillenbrand

Motorists in the US or China who buy electric cars receive hefty subsidies from the state. But Germany, where the car was invented, is not supporting the vehicles of the future -- and risks being overtaken.

The race for the cars of the future has not yet started in earnest, but the participants are already jostling for pole position. US President Barack Obama recently stressed that investment was needed in electric vehicles now otherwise an opportunity would be missed, while Britain's Business Secretary Peter Mandelson claimed the leadership in the "low-carbon economy of the future" for his country. Meanwhile German Transport Minister Wolfgang Tiefensee considers "cars powered by fossil fuels" to be "ready to be phased out."

There are good reasons for these fine words. A rapid increase in the use of electric vehicles could reduce CO2 emissions, not to mention emissions of particulate matter and other pollutants. Electric vehicles are more efficient, easier to maintain and cheaper to operate than cars with internal combustion engines. "The future belongs to electric cars" believes Volkswagen CEO Martin Winterkorn. It's an opinion shared by his colleagues at Daimler and Renault.

As a result, a growing number of countries are making a lot of money available in order to help electric vehicles make a quick breakthrough. Americans receive a tax credit of up to $7,500 (€5,800) when they buy an electric car. As of 2011, British drivers will receive almost the same amount -- in cash. In China, motorists get the equivalent of over €6,700.

And in Germany?

Motorists who buy an electric car are exempted from the German car tax for five years. The savings compared to a normal car -- based on middle-of-the-road prices -- add up to a total of a massive €140.

An Expensive Mistake

In the country where the automobile was born, there are practically no measures to promote alternatives to gas-powered engines. This is all the more amazing when you consider that the German government has just made another €3.5 billion available for the so-called "scrapping bonus," whereby motorists receive €2,500 when they scrap an old car and buy a new one. The scheme, which is officially called the "environmental bonus," is the biggest program to promote new car sales in German history.

This omission could prove expensive for Germans in the medium term. Admittedly auto manufacturers like Volkswagen and BMW also benefit from subsidies for electric cars in China or the US. But if the costly development of new engines is going to be worth it for German carmakers, then they will need strong demand in their domestic market. And with the current lack of support for electric cars, this demand may well be weak when the first vehicles are delivered to dealers between 2010 and 2012.

It's not as if the government has ignored the technology. Some €500 million is allocated for electric and hydrogen vehicles under Berlin's second economic stimulus package -- except that Germany has not granted the money to its citizens, but to its car industry. The practice has a long tradition: The government was already promoting alternative engine projects back in the 1980s and 1990s. Daimler, BMW and others tinkered around with batteries and electric engines for years using taxpayers' money. But a product which was suitable for series production never appeared.

That miserable failure was due to a banal fact of the market economy: Research grants, regulations and persuasive words are limited in their ability to influence the actions of companies. The only thing that really makes corporations sit up and take notice is the prospect of a juicy profit. If VW and their peers believed electric cars would soon be selling like hotcakes, electric vehicles would be on the road sooner rather than later.

There is a certain irony in the fact that the Chinese, of all people, have realized this connection earlier than others. The People's Republic pays the highest electric car subsidies in the world -- in the hope that a rapid uptake of the technology will give a competitive advantage to domestic electric car manufacturers like BYD.

The deputy finance minister, Zhang Shaochun, rejects lavish research grants. A direct subsidy, he says, "gives consumers a choice" -- and means that the market decides which electric cars are successful.

The unlikely eco-capitalist is correct. That is why Germany needs a new "environmental bonus" for buyers of electric cars -- - and one which actually deserves the name. Otherwise Germany's fleet of cars, which is currently being renewed courtesy of the scrapping bonus, will soon be looking pretty old-fashioned.