German EV discounts narrow as subsidies reshape pricing

Automakers have cut their own discounts on electric vehicles in Germany, signalling a shift in pricing strategy as fresh state support starts to influence the country’s largest clean-car market.

The move marks an important turn in Europe’s biggest automotive economy, where manufacturers had relied heavily on rebates after the abrupt end of earlier purchase incentives disrupted demand. Average discounts on the 20 best-selling electric models fell from 19.5 per cent in January to 18.6 per cent in May, widening the transaction-price gap between electric cars and comparable combustion-engine vehicles.

The adjustment follows the start of retroactive government support for eligible privately registered vehicles bought or leased from 1 January. Subsidies range from €1,500 to €6,000, depending on vehicle type, household income and family size. The programme applies to battery-electric cars, selected plug-in hybrids and range-extender models, but excludes company vehicles. Eligibility is capped at households with taxable income of €80,000, with additional allowances linked to family size.

The scheme is designed to support up to 800,000 vehicles through 2029, backed by a budget of about €3 billion. Its arrival has changed the balance between public incentives and manufacturer-funded price cuts. With taxpayers now absorbing part of the affordability gap for private buyers, carmakers appear to be testing whether they can reduce direct rebates without hurting demand.

Ferdinand Dudenhoeffer, who leads the private Centre Automotive Research study, said automakers appeared to be “testing the market”. The trend is most visible in smaller electric models, which are more likely to fall within the reach of households targeted by the subsidy scheme. Those vehicles sit at the centre of Germany’s effort to broaden electric mobility beyond higher-income company-car users and early adopters.

The pricing shift comes as Germany’s electric-car market shows stronger momentum after a difficult period following the withdrawal of earlier subsidies in late 2023. Battery-electric vehicles accounted for 25.8 per cent of new passenger-car registrations in April, with more than 64,000 units registered during the month. That represented growth of more than 41 per cent from a year earlier and placed electric vehicles ahead of several conventional fuel categories in market share.

Across the European Union, battery-electric models accounted for 19.7 per cent of new registrations in the first four months of 2026, up from 15.3 per cent a year earlier. Hybrid-electric cars remained the largest electrified category, while the combined share of petrol and diesel cars continued to fall. Germany remains central to that shift because of the scale of its market, its manufacturing base and its influence over European supply chains.

For buyers, the cut in manufacturer discounts means the headline benefit of the new subsidy may be partly diluted by lower dealer or brand-level price reductions. Electric cars were still almost €2,000 more expensive on average than comparable combustion-engine vehicles before state support was included. That difference is critical for private households weighing purchase cost, charging access, resale values and running expenses.

For manufacturers, the strategy reflects a delicate balancing act. Volkswagen, BMW, Mercedes-Benz, Porsche, Stellantis, Renault, Tesla and Chinese brands are competing for share in a market shaped by stricter emissions rules, volatile energy prices and pressure to protect margins. Lower discounts may help earnings, but they also risk slowing private demand if buyers conclude that public subsidies are being offset by reduced industry support.

Competition from China adds another layer of pressure. BYD and MG have gained visibility among German buyers by offering comparatively affordable models with shorter delivery times. BYD’s German registrations rose sharply in March, though its market share remained far below Volkswagen’s. The rise of Chinese brands has pushed European manufacturers to accelerate launches of lower-priced electric models while trying to avoid a profit-damaging price war.

Germany’s domestic industry is still a major force in electric-vehicle production. The country built 1.67 million electric passenger cars in 2025, including 1.22 million battery-electric vehicles and about 450,000 plug-in hybrids. That kept Germany behind China but ahead of the United States as a production hub. Industry expectations point to further growth in battery-electric output this year, helped by new models and tighter European emissions requirements.

The central question now is whether subsidies can support genuine private demand rather than merely reshuffle pricing between the state, automakers and dealers. Germany’s earlier incentive system helped lift electric adoption but left the market exposed when support ended. Policymakers are trying to avoid a repeat by targeting lower- and middle-income households, while industry executives are seeking a more predictable framework for investment, production planning and dealer pricing.

Charging infrastructure, electricity prices and resale values remain decisive factors. Buyers may be more receptive to electric models when monthly costs are clear and charging is convenient, but uncertainty over public charging availability and used-car depreciation still weighs on decisions. Leasing companies and dealers have also become more cautious after sharp swings in electric-vehicle residual values across Europe.