Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Germany is falling woefully short of its target to have one million electric vehicles on the streets by 2020 so it feels the need to do something. Enter the taxpayer: the government is considering a 5,000 euro ($5,419) incentive to lure would-be buyers. That money could be better spent.

The industry has a long way to go: in total around 12,000 were registered in Germany last year, according to the Federal Motor Transport Authority, about 0.4 percent of the total number of vehicles sold.

Needs Electrifying
German electric car sales are growing but remain a tiny fraction of the 3.2 million annual total.
Source: KBA

Not surprisingly, German carmakers are lobbying heavily for subsidies, which requires a considerable amount of chutzpah on their part.

After all, this is the same industry that spent decades selling consumers on the idea that large, high-performance cars are as essential to happiness as love and longevity. But having initially pooh-poohed electric vehicles, some industry participants were shocked when Tesla came along and showed them there was a market for those cars, albeit a small one for now.

Of course, regulatory support for electric vehicles can encourage consumer purchases -- if you throw enough money and goodies at drivers.

In Norway, a much broader package of subsidies and benefits for electric vehicles (including bus lane access) have propelled sales to 17 percent of the total last year from barely anything a few years before, according to Inside EVs.

But Germany's purchase subsidy (40 percent of which will be funded by the carmakers, according to Der Spiegel) doesn't seem large enough to make a dramatic difference.

Volkswagen's E-Golf costs more than 36,000 euros. The combustion-engine equivalent costs some 10,000 euros less and doesn't require recharging after 190 kilometers.

Aside from BMW, which spent heavily to develop its electric i-brand, Germany's carmakers haven't yet managed to produce a compelling electric vehicle to rival the premium Tesla Model S or the lower-cost Nissan Leaf. 

Rather humiliating for the nation's proud auto industry, the Renault-Nissan Alliance has sold more electric vehicles in Germany since 2010 than any other manufacturer, according to Bloomberg New Energy Finance. 

Electric Slide
Tesla and Renault-Nissan are grabbing market share in Germany's nascent electric vehicle market
Source: Bloomberg New Energy Finance
Chart shows 2010-2015 sales.

So there is no guarantee Germany's car manufacturers will be the only beneficiaries of the incentive program.

Low oil prices are also likely to dissuade many consumers for the time being.

Thankfully, battery costs are falling fast, which should make unsubsidized electric vehicles cost-competitive with combustion engines some time after 2022, according to BNEF.

Germany should therefore be patient and think more strategically.

Berlin is reported to be considering financing the development of a network of charging stations, which should help consumers get over their "range anxiety." A sensible idea.

There is also talk of research and development subsidies for battery research, which again is a sound proposal.

But Germany is worryingly complacent about battery cell development which so far it has been happy to leave to Tesla, as well as Asian companies like Panasonic, LG and Samsung.

Sure, production overcapacity is a worry, but batteries will in future be a core part of the vehicle's architecture -- as important as the combustion engine.

German carmakers would therefore be well advised to skill up in battery chemistry.

Better still, they could one day join forces to build a battery-cell plant to rival Tesla's massive "gigafactory" outside Reno, Nevada.

Such cooperation isn't fanciful. Audi, BMW and Mercedes-Benz last year pooled resources to purchase Nokia's digital maps business, Bain & Company analysts note.

The Nokia purchase should also prevent Germany's carmakers being outmaneuvered by Silicon Valley in autonomous driving, an area where it needs to keep up its guard. Securing the nation's future in the electric vehicle era requires similarly bold thinking.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net