Buyer’s premium for electric cars: much money for small impact

In Germany, the currently debated buyer’s premium for electric cars doesn’t add up. That’s the conclusion reached by economists from the Niedersachsen Research Centre for Vehicle Technology at the Technical University of Braunschweig.
EV range

Professor Thomas Spengler and his team expect an added 23,000 and total of 389,000 electric vehicles by 2020. This would require an expenditure of 832 million Euro. As a sustainable alternative to a buyer’s premium, the researchers suggest promoting the expansion of the charging infrastructure or further development of battery technology.

“The planned buyer’s premium for electric cars misses its target. Our simulations show that even a doubling of the premium wouldn’t reach the target of one million electric vehicles by 2020”, explains Spengler, board member of the research centre.

Effect unclear
A premium of 5,000 Euro for private and 3,000 Euro for commercial buyers is the current suggestion for reaching a goal of one million battery and plug-in hybrid vehicles by the year 2020. The premium would begin as of July 2016 and decrease annually by 500 Euro. The expense is calculated at 1.3 billion Euro, of which 40 percent are to be carried by automobile manufacturers. “Up to now it is unclear how large the effect of a buyer’s premium is, as it is currently debated in the federal government,” explains Dr. Karsten Kieckhäfer, researcher and developer of simulation models for analysis of the auto market in Professor Spengler’s team.

Two scenarios
Using the market simulation model “AMaSi”, the economists have investigated what effect the suggested buyer’s premium could have on the German auto market. Two concrete scenarios were analysed. One is a base scenario without promotional tools, which, used on past years’ data, reflects real sales figures with a high accuracy. According to this model, 366,000 electric vehicles would be expected by the end of 2020. In the second, more optimistic scenario, where the experts assume a stronger effect of advertising and word of mouth propaganda, the researchers expect 713,000 electric cars.

As Karsten Kieckhäfer explains, “The application of our models on the German auto market shows that without an active intervention by manufacturers and politicians, and no strong change in customer behaviour, the target of the federal government will clearly be missed.”

Both target and budget missed
With the buyer’s premium in place, the economists calculate that by 2020, the base scenario would increase sales by 23,000 cars, whereas the optimistic scenario shows 47,000 more electric cars being sold. This would amount to a total of 389,000 or 760,000 vehicles. Neither case cracks the million mark. However, the optimistic scenario carries a cost of 1.49 billion Euro, which exceeds the planned budget. Even a doubling of the premium to 10,000 Euro would lead to a total of only 459,000 (base scenario) and 886,000 (optimistic scenario) vehicles by 2020, which is still under the target. The cost of 3.82 billion Euro and 7.28 billion Euro would by far overshoot the budget.

Sustainable alternative
The team around Professor Spengler sees the designing of a more attractive vehicle offer as a sustainable alternative to a premium. Investment in charging infrastructure as well as the further development of battery technology to improve the range and lowering production costs, Spengler explains, have an effect beyond the year 2020, as opposed to the premium, and create the necessary requirements for the long-term success of electromobility. In the short term, adds Spengler, demand could be increased if public procurement also invested more strongly in electric vehicles.

Photo credit: Redcorn Studios [Matt], flickr/Creative

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