Germany has pledged that it will become carbon neutral by 2045. The country has set preliminary targets of cutting emissions by at least 65% by 2030, compared to 1990 levels, and 88% by 2040. The transportation sector accounts for 20% of total emissions in the country. Increase in number of electric vehicles (EVs) on roads is important for the country to achieve these targets.

EVs can be classified into battery electric vehicles (BEVs) that run on pure-play batteries, plug-in hybrid vehicles (PHEVs) that run on batteries in combination with internal combustion (IC) engines and hydrogen fuel cell vehicles (HFCVs). Earlier the target was to have 15 million BEVs on roads by 2030. But, with some procurement-related issues associated with key ingredients required to manufacture batteries, the target has been revised and now PHEVs have been also included.

In 2021, the country ranked third in the total number of EV sales, after China and the United States. It contributed around 11% to global EV sales. The country reported a 73% jump in EV sales in 2021 on a year-on-year (y-o-y) basis.

Table 1: Electric Vehicles Sales, Germany
EV Type20212020
Source: Federal Motor Transport Authority (KBA); GlobalData

The jump was mainly driven by the BEV segment. At the end of 2021, the BEV segment contributed 13.6% to the annual sales, as against 6.7% in 2020.

The BEV market share has increased almost continuously after the increase in subsidies on them in June 2020. In addition to the environmental bonus, the development is also being driven by the fact that more and more electric models are coming into the market.

The German Federal Government had introduced the innovation bonus as part of the Corona economic stimulus package 2020, doubling the state share of the environmental bonus. This scheme was limited until the end of 2021, but the then federal government had already agreed in November 2020 on an extension until the end of 2025. According to the current funding, subsidy amounts of up to €9,000 for a purely electrically powered vehicle and up to €6,750 for a PHEV will remain valid until the end of 2022. The new federal government will work out the subsidy amount applicable from 2023 onwards.

The main component of EVs are high voltage batteries, for which the key ingredients are lithium, nickel and cobalt. These elements are extracted through environmentally damaging mining methods. The suppliers don’t meet the audit processes for Environment, Sustainability and Governance (ESG), which makes the task of sourcing enough raw materials to support the EV ambitions a very tall order. PHEVs use smaller batteries, and the same quantity of material can be spread over a greater number of vehicles as compared to BEVs.

Germany has set an interim target of 48.1% reduction in greenhouse gas emissions coming from the transport sector from 1990 level by 2030. Growth of the EV market is important for this. The country has already crossed one million electric cars on roads. Half of these are BEVs and the remaining PHEVs. To reach the 15 million target only for BEVs by 2030, the market should grow at a CAGR of 35%. Considering the issues and delays related to the procurement of raw materials used in making high voltage batteries, it is difficult to achieve.

With the inclusion of PHEVs, the country can try to achieve the target of 15 million electric cars on roads by 2030, but at the same time, there would be an increase in emissions due to the IC engines installed within PHEVs. This might dent the country’s preliminary target to reduce greenhouse gas emissions coming from the transport sector by 2030.