Electric cars have hit a roadblock: Without incentives, sales are plummeting in Germany hurting brands like Audi, BMW, Mercedes-Benz and Volkswagen, but what about Australia? | Analysis

There’s something in the water in Germany, a country widely regarded as the leader in premium motor vehicles. 

Brands like Audi, BMW, Mercedes-Benz and Volkswagen have invested staggering amounts of money into electric cars. They may be faster, quieter and better handling than ever, but the punters don’t seem to want them, at least not without a push. 

With Volkswagen considering the first ever plant closure in its 87-year history, the Group’s CFO Arno Antlitz illustrated a bleak picture of the car making giant’s financials. 

“We still have a year, maybe two years, to turn things around,” Antiltz said addressing factory workers, according to Reuters. “But we have to make use of this time,"  he added, indicating a radical rethink is needed. 

It is the leader of the group, the VW brand, that is struggling the most, missing its cost-cutting target of €10 billion (A$16.6 billion) by nearly 30 per cent. Part of VW’s struggle is excess spending according to Antiltz, rather than ailing sales. 

VW failed to recover its sales after the pandemic, losing 500,000 annual units — the equivalent of two factory’s production — with no recovery in sight, thanks to mounting cost-of-living pressures and a shifter in customer demands.  

The answer, at least publicly, seems to be the MEB entry platform that will spawn smaller Polo and T-Cross sized electric models perfect for Europe. But there’s one problem with affordable cars: you can’t make anywhere near as much profit on each sale. It’s all about volume. 

It’s a broader group issue, too, with all the brands including Porsche, Audi, Bentley and more producing a total of 9 million vehicles in 2023 — or 5 million shy of the total 14 million capacity. 

While combustion vehicles are contributing it is electric cars that are causing the biggest part of the problem with VW’s home country, Germany, acting as the canary down the coal mine. 

Electric car sales are down 69 per cent in the country this year; a direct result of the government ditching incentives at the end of 2023. There are other factors for established players to consider, with Tesla and new Chinese brands offering cheaper prices and better battery technology despite punishing tariffs. 

That’s enough to get the attention of the government which is reintroducing electric vehicle (EV) incentives to drive the sale of higher-end models, specifically targeted at company cars. And the savings are staggering. 

When combining the new 40 per cent depreciation allowance, lowering a buyer’s taxable income and higher price cap, an electric car equivalent to A$155,000 like the Audi Q8 e-tron or BMW i4 M50 will only cost the owner A$390 (€237.5) per month in Germany, where it would have previously been A$1600 (€950), according to Auto Bild’s calculations. 

The subsidies are going to cost the German government around half a million Euros over four years — about A$800,000 according to Reuters.

The subsidy is unlikely to rescue Volkswagen’s financials alone, with union members claiming the brand’s decision making is slow and production strategy is inefficient. However, it is a step in the right direction for keeping jobs at Volkswagen. 

It does seem a little odd the government would rescue high-end brands as it is the more sprawling, high-volume carmakers that are really feeling the sting according to analysts working for Just Auto that claim VW, Stellantis and Renault are operating factories at unprofitable levels. 

Germany is putting back a similar set of incentives to that which is driving — albeit more slowly than before — the uptake of electric cars in Australia. Currently, EVs make up 7.6 per cent per cent of new-car sales locally (up 12.1 per cent on last year).

Australia has fuel efficiency standards coming in force, effectively, by 2026 however Europe’s case situation suggests that, unless buyers are incentivised to buy electric cars they are likely to continue to buy combustion engined vehicles, even if manufacturers are disincentivised to sell them.

Without local carmakers to protect, it's harder for our government to make a case to incentivise electric car purchases, too.

Electric vehicles continue to grow share, it is hybrid models rising astronomically — by over 90 per cent in Australia and that is excluding plug-in hybrids. Companies that have more heavily invested in hybrids seem to be in a better place financially. 

Electric vehicles sounded like a saviour half a decade ago but slowing customer demand, increased competition and high production costs seem to make them prohibitive in many price-driven segments. 

It looks increasingly like a diverse selection of zero and low emission vehicles will need to be augmented by non-automotive solutions if manufacturers are to stay in business and customers are to maintain mobility — not just in Europe, but here in Australia, too.