The European Union is developing a unified subsidy program to bolster its struggling electric vehicle market and counter China’s growing influence in the sector. European Commissioner for the Green Transition Teresa Ribera confirmed the initiative, which German Chancellor Olaf Scholz originally proposed a few months ago.
The 6% drop in EV sales in Europe last year can be attributed directly to the abrupt end of tax incentives in countries like Germany and France. Once a leader in zero-emission subsidies, Germany saw its market collapse after halting these incentives for private EV buyers in 2023.
The cooldown has undermined the revenue and profitability of European car makers, threatening numerous jobs in the sector. Volkswagen, one of Germany’s biggest employers, is in the midst of the crisis.
Reigniting adoption
As German incentives were deemed unlawful and blocked by court—not to mention their wide effect on national treasuries -Olaf Scholz proposed to outline a subsidy scheme on a European level. The sector is exposed to adoption in all European markets, and a homogeneous approach would be more transparent.
It would also compensate for halting the subsidies in Flanders last year, which had a noticeable effect on EV adoption among private customers. Now, this proposal seems to be gaining traction.
“We are exploring how to develop measures from a European perspective, rather than relying on disjointed national subsidies,” Ribera told The Financial Times during the World Economic Forum in Davos. The proposed program would offer “incentives” to reignite EV adoption. However, Ribera could not elaborate on the details concerning the size and length of the support.
Not for Chinese EVs
Designing such a subsidy system will be no small feat. The European Commission faces the dual challenge of financing a costly program and ensuring compliance with World Trade Organization (WTO) rules.
As mentioned, European policymakers are exploring mechanisms to restrict access to the subsidies to prevent the funds from benefiting Chinese automakers—whose vehicles are heavily subsidized by their own government. It would be counterproductive to impose tariffs on Chinese cars first and then incentivize them once they’re purchased.
European officials could be inspired by the Inflation Reduction Act as inaugurated by former U.S. president Joe Biden, where the grant is linked to local production and a percentual use of regionally sourced parts
2035 ban remains
Commissioner Ribera is also pushing for stricter conditions on foreign automakers operating in Europe, including requirements to share technology—a strategy reminiscent of China’s policies over the past 30 years.
The European Commission is also under pressure to balance rapid electrification with support for local automakers. “Relaxing the 2035 ban on internal combustion engines is not an option,” Ribera stated. However, discussions about easing CO₂ emissions targets for automakers are ongoing. A compromise could involve reduced penalties for manufacturers that invest heavily in new electrification initiatives
Nevertheless, chances for success remain slim. Urgency is needed, but experts warn that the EU’s legislative process could delay the program’s implementation. Designing and approving such a system requires consensus among member states, and the financial burden raises questions about funding sources. The continent-wide tax reduction for EVs would require unanimous approval, which appears unlikely.
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