T&E Analysis: Fossil Company Car Subsidies Cost 13.7 Billion Euros and Hinder the Transition to Electric Vehicles

The federal government subsidizes fossil fuel-powered company cars with 13.7 billion euros every year, thereby hindering the transition to e-mobility, a new study by the environmental organization Transport & Environment (T&E) finds. This places Germany among the leaders in countries studied by Environmental Resources Management (ERM) on behalf of T&E. Only Italy pays more subsidies for environmentally harmful company cars with 16 billion euros. T&E calls on the federal government for a comprehensive reform of company car taxation to stimulate the domestic sales market for e-cars more strongly despite tight budgets. The study is the first to examine the effects of the main tax breaks traditionally granted for company cars and not available to private car owners. These include input tax deduction, depreciations, flat-rate taxation of the monetary benefit of company cars, and fuel cards.

Instead of referring to average values or individual example models, the tax benefits for all registered car models were calculated. The six largest automotive markets in Europe were analyzed. In total, they subsidize fossil fuel-powered company cars with 42 billion euros per year: Italy (16 billion euros), Germany (13.7 billion euros), France (6.4 billion euros), Poland (6.1 billion euros), and Spain (0.1 billion euros). In the United Kingdom, combustion vehicles are taxed significantly higher than e-company cars. These incentives have given e-mobility the necessary boost. 21.5 percent of new British company cars are already electric.

Low incentives in Germany for e-company cars

In Germany, the tax incentives are too low to promote the transition to e-mobility. For a leased e-car like the VW ID.4, the employer gains a tax advantage of only 12 euros per year compared to a comparable combustion engine like the VW Tiguan. Therefore, in the first half of 2024, only 11.7 percent of commercial new registrations were electric, compared to 16.6 percent of private new registrations. The study also shows that there are more climate-damaging tax advantages, the larger the car is.

The higher the class, the higher the subsidy: 4,000 euros for Opel Corsa ICE

A leased Opel Corsa receives subsidies amounting to 4,015 euros per year in Germany, while a leased Audi A6 gets nearly twice as much. Especially SUVs powered by fossil fuels receive high tax advantages, ranging annually between 6,477 and 8,544 euros. This also explains why companies register more climate-damaging SUVs than private households. Of the total 13.7 billion annual subsidies for fossil company cars, 4 billion go to SUVs.

"Our tax system offers no real incentive to switch to e-company cars. Every year we subsidize fossil fuel company cars with billions, while German manufacturers, like VW recently, complain about a weak domestic sales market for e-cars. It is high time for the state to invest our money in the technology of the future. That would be good for the climate and the industry," explains Susanne Goetz, e-mobility expert at T&E Germany.

In Germany, two-thirds of all new registrations are for commercially used vehicles. Almost half of these company cars are service vehicles that may be used privately in addition to business use.

"The federal government has taken the first step with the growth initiative to harness the enormous industrial policy potential of company and service vehicle taxation by making commercial e-cars more attractive. But that is far from sufficient. What is missing is the courage for a more efficient step: making combustion engines less attractive. In Germany, we unfortunately find this difficult compared to Belgium or the United Kingdom. Yet, we could really use the additional tax revenue to make e-cars affordable for households with low incomes. The solutions have been on the table for a long time. We just need to implement them," Goetz appeals.