Germany: How subsidized company cars are hurting EV adoption

Walking through the district of Bad Godesberg in Bonn, Germany, one passes many stately villas from the early 20th century. The streets are lined with old, towering trees, whose leaves gently drift onto the cars parked below. Painted in discreet black and featuring exhaust pipes, these cars are almost unusually large models from premium carmakers such as Porsche, Mercedes, Audi, and BMW.

Bad Godesberg is a neighborhood where many high-earning employees of large corporations like Deutsche Telekom and Deutsche Post live, who often receive company cars as part of their compensation.

However, soon there will be fewer gas or diesel vehicles driving through the district because those combustion-engine cars belonging to Deutsche Telekom are being phased out. Since last year, the partially state-owned telecom operator has allowed its employees to register only battery electric vehicles (BEVs) as new company cars.

EVs rare in German corporate car fleets

There are not many companies in Germany that have embraced the switch to battery-powered cars.

Beginning in 2025, German software maker SAP will allow only EVs and hybrids as company cars. And at chemical company BASF, only 320 company cars are battery-powered of nearly 1,600 owned by the firm. "We have set a CO2 limit for all company car orders," BASF told DW in a statement, meaning combustion-engine vehicles are still part of the company fleet and can be ordered.

As far as hybrid car models are concerned, they've come under massive criticism when used by employees because most companies compensate only for conventional fuel bills but not for the electricity used for charging. As a result, those cars are rarely driven in electric mode. And since their onboard battery makes them also heavier, hybrids often have a worse carbon footprint than standard combustion-engine cars.

SAP, meanwhile, has addressed the problem by allowing its fuel cards to be used both for refueling and recharging.

Negative climate impacts long-lasting

Two out of every three new cars registered in Germany have been bought by a business entity. Nearly half of these are corporate cars that employees can use for both business and private purposes. They are mostly driven only for a few years and then sold on the used car market, where they continue to have an impact on overall emissions for many more years. In this way, corporate car fleets significantly influence the makeup of the nation's vehicle stock over time.

Also, company cars tend to be driven more than private vehicles due to employers covering fuel costs, according to Transport & Environment (T&E), the umbrella organization of European nonprofit groups advocating for sustainable transportation. T&E says company fleets account for three-quarters of the emissions from all new cars. 

In addition, German companies are increasingly opting for heavier cars, the organization says, with one in three new registrations currently being an SUV, or at least a medium-sized or premium vehicle.

German state still subsidizes polluting company-car use

While the German government is aiming to reduce carbon emissions from the country's transportation sector to net zero by 2045, businesses here have so far made little progress along this path. In the first half of 2024, only about 12% of newly registered company cars in Germany were fully electric.

The government subsidizes company purchases of EVs with higher benefits than conventional cars, but both types of cars still qualify for tax credits. And as tax benefits rise with the vehicle's purchase price, companies still favor higher-end vehicles.

According to a recent study done by Environmental Resource Management (ERM) and commissioned by T&E, the German government annually subsidizes fossil-fuel cars bought by companies with €13.7 billion ($14.82 billion). The ERM survey, which analyzed auto policies in the six biggest European car markets, has found that Germany leads in such subsidies, second only to Italy, which spends €16 billion. The six biggest spenders on environmentally harmful car subsidies shell out a total of €42 billion annually to companies.

At the end of last year, the German government scrapped EV subsidies for the general public, with Transport Minister Volker Wissing arguing  that "creating a market permanently with subsidies is not a solution." In an interview for German public television, he said the EV market needs to sustain itself independently. At the same time though, he refused to scrap subsidies for company cars, electric or conventional.

German auto industry cries out for state support

The slow electrification of company fleets in Germany, meanwhile has come to weigh on the EV sales of the country's carmakers, who are concerned about low demand, says Susanne Goetz, an expert with T&E. "Brands like VW and BMW made 70% of their European sales last year in the company-car market, so the potential is substantial," she told DW.

The German auto industry itself argues in favor of electrification. "Company cars are an enormous boost for the rapid spread of climate-friendly, electric powertrains on German roads," Hildegard Müller, president of the German Automotive Industry Association (VDA), said recently.

Yet, this view appears not to be fully adopted by businesses, including even the country's automakers. BMW, for example, responded to a DW query regarding its company-car fleet: "We currently see no need to intervene in the choice of vehicles for our executives." Little wonder that fewer than a third of BMW's company cars are fully electric.

What's also important to note is that company-car subsidies primarily benefit the wealthiest 10% of the population, says the World Wildlife Fund (WWF). A study co-commissioned by the environment organization has found that company cars are used by employees whose gross annual incomes exceed €80,000.

With a recent so-called Growth Initiative, the German government is trying to spur purchases of EVs by companies, offering them speedier write-offs for their investments in battery-powered and other emission-free vehicles.

Viviane Raddatz, head of WWF Germany's Climate and Energy Department, suggests that taxing vehicles based on CO2 emissions and favoring smaller EVs would be more effective. Other measures, like promoting company bicycles or public transportation tickets, would also help reduce emissions, she told DW. Moreover, subsidizing such alternatives would also address the issue of scarce parking space in German cities and towns, she said.

This article was originally written in German.