The relationship between government incentives and Electric Vehicle pricing over the last decade

EV'SREGULATIONS6 min read

17 - 02 - 2022

Although the car fans are impressed by the new designs and sublime performance figures of new electric vehicles, they don’t realize that behind this enormous technical revolution lies massive combined efforts from governments, legislators and car companies. Such major shifts in production doctrines, technology and materials can only be successful if supported by politicians and policymakers. Most of the world’s governments have supported the rising EV market through various initiatives and grants over the last ten years.

What Are the Government Initiatives?

Like any new and revolutionary technology, electric vehicles are expensive to be implemented at first. The significant changes in supply chains, new materials (such a lithium-ion), specific software and utterly different proception techniques require substantial investments. But this is not all: Electric vehicles require charging and a specific service network, which is also costly. The result is an expensive final product which is useless if not supported by the whole community of subjects dedicated to keeping the electric vehicles going. Realizing the potential of the EV market and its importance in global carbon neutrality efforts, various world governments have already decided to invest large sums into initiatives and official programs of helping the EV buyers and businesses to recuperate some of these significant costs.

Depending on the location, government initiatives can take form in grants when purchasing a new electric vehicle, in reducing the costs of installing a home charger, or in helping the company shift towards the electric market. Some local governments offer electric vehicle owners free parking and charging in order to promote these types of vehicles. While these initiatives are different from country to country, what they all have in common is the willingness to invest in an environmentally-friendly future and the determination to help the EV market become a dominant segment over the next period.

Government Initiatives In Numbers

The first government grants were introduced in the late 90s when the EV market was just emerging. However, most countries waited until 2010 and then started offering initiatives for the few vehicles that were on sale at the time. Now, more than ten years later, we have numerous EV models on sale ranging from affordable economy cars to luxury and sports models. However, there is still a significant price gap between electric and internal combustion vehicles in the same market segment.

In the USA, the federal grant for electric vehicles ranges from $3,500 to $7,500 and can even go up to $12,500 for models assembled by US autoworkers in domestic factories. The tax credit policy introduced over a decade ago helped stimulate the rise of expensive electric vehicles. Still, it is not that effective for economy EV models on which popular car manufacturers highly depend. In Europe, national governments help future EV owners mainly through grants when buying or leasing electric models, ranging from €6,750 for plug-in hybrids to €9,000 for fullelectric models, as is the case in Germany. In the UK, the maximum amount is ti5,000, and in France, buyers can save up to €19,000 when they combine all available grants and bonuses. Some countries, like the Netherlands, even offer an initiative of up to €2,000 when buying a previously owned electric vehicle, which is an exciting move helping people obtain EVs on the second-hand market.

“ Most of the world’s governments have supported the rising EV market through various initiatives, such as grants when buying or leasing electric models. ”

The evolution of initiatives in China

However, as the biggest EV market, China finds itself in a slightly different situation. After almost a decade of significant government grants, and causing an enormous rise in the number of electric vehicles on the roads, the Chinese market came to the point where the government started lowering the amounts of initiatives. At first, EV buyers in China were awarded substan al initiatives up to ¥60,000, which is almost €8,500. The government offered the maximum amount for more expensive vehicles with the longest range. Eventually, the government grants for EVs were reduced by 20% in 2020 and even by 10% more in 2021.

But what is the motive for such a shift in policy? There are two main reasons for this decision. First, after over ten years of successful implementation, the Chinese EV market is now the biggest on the planet, with nearly 1 million battery-powered vehicles sold in 2020. This implies that the EV community has been successfully established and that there is no further need for expensive government initiatives. Second, the specifics of the Chinese EV market tell us that the average price of an EV in China is just €6,700 and can be as li le as €3,700 for small city cars. Such low costs are made possible by a large number of local manufacturers and low production prices. With a low asking price, government subsidies no longer make a significant difference in the buyer’s decision. Compared to China, the average costs of new EVs sold in Europe or America are much higher. In fact, China is the only country where the average price of a ba ery-powered vehicle is actually lower than the average price of a vehicle with an internal combustion engine (ICE).

The Future Of Government Initiatives

After ten years of implementing this policy around the globe, we can acknowledge its success. In 2010, when most of these governments initiatives were up and running, only a mere 17,000 EVs could be found on the roads worldwide. Today, over 8 million battery-powered vehicles are in use. This extraordinary rise could not have been made possible without the intelligent thinking and enormous amount of funds released by the governments: Not only towards the car buyers, but also towards car companies, startups, and technology developers.

So what does the future exactly hold? The example of China all but answers that question. At the moment, government pricing helps reduce the high cost of EV ownership, promotes buying the battery-powered vehicles, and creates an environment in which EV companies and services are encouraged and supported by policymakers. European and American EV markets still need help in order to make electric vehicle ownership as or more affordable as buying a gas-powered car. But we are sure that with further implementation of this policy and an overall rise in interest for such vehicles, both continents could experience China’s scenario within the next ten years, and the initiatives will eventually be halted as well.

Geoffrey Heyninck

Chief Executive Officer

Conclusion

Because of several government initiatives around the globe, the EV market has really taken off. However, as is already the case in China, other markets will eventually reach the point where EVs will become the new standard and the financial aid will be halted.

By relying on Quadriga as a trustworthy partner, our clients and suppliers can better anticipate the evolution of the automotive market, such at this global movement towards electric vehicles.

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