Are Germany's subsidized company cars 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 prominent exhaust pipes, these cars are almost unusually large models from premium carmakers such as  Porsche, Mercedes, Audi and BMW.

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

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

But not many German companies have embraced a total switch to battery-powered cars.

Beginning next year, 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 also makes them 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.

Company cars heavier, driven more often

Two out of every three new cars registered in Germany in recent years 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.

With employers covering fuel costs, company cars also tend to be driven more than private vehicles, according to Transport & Environment (T&E), the umbrella organization of European nonprofit groups advocating for sustainable transportation. In a June report, T&E said 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 said, with one in three new registrations currently being an SUV, or at least a medium-sized or premium vehicle.

German state still subsidizing polluting company cars

While the German government is aiming to reduce carbon emissions from the country's transportation sector to net zero by 2045, businesses 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 Resources Management and commissioned by T&E, the German government annually subsidizes fossil-fuel cars bought by companies with €13.7 billion ($14.82 billion). The survey, which analyzed auto policies in the six biggest European car markets, 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 with 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, said 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 drivetrains on German roads," Hildegard Müller, president of the German Automotive Industry Association, said earlier this year.

Yet, this view appears not to have been fully adopted by businesses, including even the country's automakers. "We currently see no need to intervene in the choice of vehicles for our executives," said BMW, for example, responding to a DW query regarding its company-car fleet. Little wonder, then, 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, according to the World Wildlife Fund. 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 the Climate and Energy Department at WWF Germany, suggested 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 added.

This article was originally written in German.