Germany is set to launch a new incentive scheme worth about 1 billion euros ($1 billion) to get more consumers buying electric cars as it struggles to meet a target of bringing 1 million of them onto its roads by the end of the decade.
The costs of the incentives, similar to those already established in some other European countries, are to be shared equally between the government and automakers with a view to selling an additional 400,000 electric cars, Transport Minister Alexander Dobrindt said on Wednesday.
Currently Germany, the biggest car market in Europe, has only about 50,000 purely battery-powered vehicles and plug-in hybrids among the 45 million cars using its roads.
Under the plans, agreed early on Wednesday between government ministers and representatives of Volkswagen , Daimler and BMW, electric car buyers will get a 4,000-euro discount while buyers of plug-in hybrid vehicles will get a discount of 3,000 euros.
"With this, I believe we will be able to give a boost to quickly move the number of vehicles (sales) to a considerable level," Finance Minister Wolfgang Schaeble said.
The programme includes 300 million euros of spending on charging stations and could start as early as May, Schaeuble said, adding that the government was considering further steps like tax incentives to make electric cars even more attractive.
IG Metall, Germany's biggest trade union, welcomed the decision, which it said should help secure jobs for the future. "This step was urgently needed," said the head of the union, Joerg Hofmann.
The car industry has repeatedly urged Germany to help boost demand for electric cars.
But lawmakers within Chancellor Angela Merkel's Christian Democrats have criticised the idea of subsidising private car sales, as have environmental and taxpayers' lobbies.
They say the government should instead use the money to fund the electrification of taxi and car-sharing fleets and invest in public transport.
Bankhaus Metzler analyst Juergen Pieper said: "Incentives are an appropriate step. Although it's true that the car industry is rich enough to support itself and also is currently viewed in an unflattering light (over the diesel emissions scandal), you need subsidies to stimulate stronger demand for EVs."
While the Volkswagen emissions scandal has highlighted Europe's heavy reliance on diesel cars, other countries in Europe already have incentive schemes in place to get more consumers to buy electric vehicles, including Norway, the Netherlands, France and the UK.
"In countries where the government is providing an impetus, electric mobility is growing more quickly," Matthias Wissmann, head of Germany's VDA auto industry lobby said.
BMW, Mercedes-Benz and VW's Audi - the world's largest producers of luxury cars - rank only 12th, 14th and 22nd in terms of annual sales of electric and hybrid vehicles, trailing leaders Toyota, Honda, Lexus and Nissan, according to figures compiled by LMC Automotive.
But the premium car makers will not benefit from the new sales incentives as cars with a net price tag of more than 60,000 euros are not eligible, Schaeuble said.
($1 = 0.8844 euros)