Anyone buying a new battery electric vehicle (BEV) in the compact class in Germany today has lower total costs of ownership than their petrol-powered counterpart. In the small car category, the cost savings are lower and disappear altogether without a purchase premium. Against the background that the German government wants to phase out the current subsidy at the end of 2025, this is a problem for the accelerated electrification of individual transport.

This is the conclusion of a new study by the International Council on Clean Transportation (ICCT), which compares the total cost of ownership of petrol- and battery-powered models in the small and compact car segments and presents a socially oriented subsidy concept.

When considering the total costs of purchasing and operating a vehicle, factors such as subsidies, taxes, maintenance and fuel costs play just as important a role as the purchase price of the vehicle. Here, the ICCT's analyses show a clear cost advantage of BEV options over their petrol-powered counterparts in the compact segment.

“The market for battery electric cars is developing very fast. Compared to petrol cars, electric drive is also a financially viable option in the compact and small car segment in Germany. If the car is kept for at least four years, lower operating costs and current subsidies make up the difference to a higher purchase price,” said Sandra Wappelhorst, co-author of the study and senior researcher at the ICCT.

Practical examples

The study compares the total cost of ownership of two similar compact-class vehicles: a battery-electric VW ID.3 Pro and a petrol-powered VW Golf VIII Style 2. The cost savings of the electric model over four years amount to 5,100 euros (49,900 euros vs. 55,000 euros). Taking into account the purchase premium for electric cars, the total cost of the BEV decreases (42,700 euros) and the cost advantage increases to 12,300 euros.

In the small car segment, the scenario is different from that for the compact class. If we compare the total costs of a battery-electric Dacia Spring Extreme Electric 65 with those of a petrol-driven Toyota Aygo X 1.0, the Dacia is initially 6,000 euros more expensive over the four-year period (34,000 euros vs. 28,000 euros). However, if the purchase premium is also taken into account, the BEV is the more economical choice here as well, with total costs of 26,900 euros, which corresponds to a saving of about 1,100 euros compared to the petrol car.

“The purchase premium is an important instrument to improve the competitive conditions for battery-powered electric vehicles in the small car segment. Should this subsidy expire, a large part of the population will be left without an affordable electromobility option. This is even more problematic considering that the market for used electric vehicles is still underdeveloped,” warned Kyle Morrison, lead author of the study.

Four-year total cost of ownership for selected vehicle models in the compact (C) and mini car (A) segments in Germany from 2023 to 2026, assuming 100% alternating current home charging. Costs are shown with and without the 2023 one-time purchase incentive and four-year application of the GHG quota. Source: ICCT

Redesign of the purchase incentives

Low-income earners tend to use the second-hand car market, which still offers hardly any electric options. Here, a redesign of the purchase incentives for BEVs could help to reduce burdens for lower-income groups and facilitate access to electric mobility. Therefore, the study authors have developed an income-dependent incentive concept for the purchase of BEVs. The proposal provides for an upper income limit of 5,000 euros net for the subsidy and doubles the current subsidy amount of 7,200 euros to 14,400 euros for this purpose. Households with lower incomes would thus benefit most from such a change in the incentive programme.

“Small battery electric cars can increase their market share in Germany if well-designed policy instruments are in place to promote social participation. A socially designed support programme for new BEVs makes it possible to accelerate this process. It can help extend the benefits of electromobility to a wider population and potentially reduce emissions faster,” said Morrison.

In the first half of 2023, battery electric vehicles accounted for 14 per cent of new registrations in Germany. With an average lifespan of 13 years, every newly registered petrol or diesel vehicle will still contribute to the emissions of the existing stock for a long time.