At a decisive moment for the European Union's energy transition in terms of electric mobility, Germany’s tax policy is actively discouraging the shift towards electric vehicles (EVs) and instead promoting large, polluting SUVs among company fleets, according to a new report by Transport & Environment (T&E). The analysis highlights Germany as one of the worst performers in Europe when it comes to incentivising cleaner corporate transport.

Source: T&E

Despite corporate vehicles making up 60% of all new car registrations in the EU, the tax advantages for companies opting for electric vehicles in Germany remain among the weakest in Europe. Over a four-year period, the tax gap favouring EVs in Germany stands at just €9,000 — a third of the €24,000 benefit available in France.

The problem intensifies with vehicle size. No EU country offers more generous fiscal benefits to large, polluting corporate SUVs than Germany, the study finds. These include VAT deductions and high depreciation allowances, often exceeding the taxes owed. As a result, Germany now absorbs 40% of all heavier combustion-engine SUV company cars sold in the EU. In contrast, France’s stricter taxation on high-emission vehicles limits their market share to just 0.3%.

SUV boom driven by corporate tax incentives

T&E warns that poorly designed tax systems are fuelling Europe’s SUV boom. In 2024, large combustion SUVs (segments D to G) represented 10.3% of new corporate registrations, nearly twice their market share among private buyers (5.5%). Heavier SUVs (segments E to G) had a fourfold higher uptake in company fleets than in the private market (2.5% vs 0.8%).

Source: T&E

“Many governments in Europe – especially Germany – have a tax policy that is bad for the climate,” said Stef Cornelis, T&E’s director for Electric Fleets. “Governments should have the courage to tax cars based on how much they pollute and the space they occupy. This would increase revenue and drive EV demand.”

Germany is one of seven EU nations with no acquisition tax on petrol vehicles, making it an outlier in an otherwise greening Europe. Countries such as France, Portugal and Slovenia are leading the way with greener fiscal systems that tax based on CO? emissions and vehicle weight. Portugal, for example, offers a tax gap of €30,300 in favour of EVs, compared to just €14,700 in Italy, €3,200 in Spain, and a meagre €3,100 in Poland.

A call for reform across the automotive sector

Nordic countries like Finland and Sweden, which impose some of the highest taxes on polluting company cars, show that strong green taxation leads to higher electrification rates. Although their tax differentials have decreased as EVs become mainstream, they remain significantly more progressive than those in Central and Southern Europe.

T&E’s report concludes that reforming company car taxation is critical to reversing the SUV trend and accelerating the green transition in Europe. It also calls on carmakers to support fairer taxation, noting that the German automotive association VDA continues to resist green tax reform.

“You can’t bemoan weak demand, lobby the European Commission to water down climate targets, and at the same time oppose the policies needed to make electric vehicles more attractive,” Cornelis added.