Germany's slowness to explore electric cars imperils its best industry

Germany's car industry plugs into an electric future

Germany invented the motor car in the late 19th century and has managed to remain at the forefront of car making ever since, partly because of its ability to develop ever better high-performance combustion engines.

The car industry, the mainstay of Germany's economic prosperity, employs 750,000 people and is raking in profits by exporting its luxury limousines around the world.

So far, so good. But German makers have been so mesmerised by the quest to perfect the combustion engine that they are lagging behind rivals from other nations in developing and marketing electrical vehicles, which are generally acknowledged to hold the key to the future of the industry. Angela Merkel, the German chancellor, has just unveiled plans to promote the development of electric cars in Germany and the establishment of a mass market for them - but the measures are not bold enough to put Germany in the lead.

Germany is trailing the US, France and Japan in the market for electrically-powered vehicles, according to the Electric Vehicle Index, which has been compiled since last year by the business consultancy Mckinsey and the German business magazine WirtschaftsWoche.

None of the country's top car makers is mass-producing electric cars yet. Only a few thousand such vehicles are on German roads at present, most of them as part of experimental projects. The first German-designed electric car will not enter mass production until next year with a battery-powered version of Daimler's Smart car. BMW and VW plan to follow in 2013.

Competitors have made much faster progress. Japan's Toyota has been selling the Prius, a hybrid electric and combustion engine vehicle, since 1997, and France's Renault plans to launch electric cars this year. The US, France and China have launched major subsidy programmes for the new technology. In France, the state subsidises purchases with a grant of €5,000 (Dh26,293) per car.

Mrs Merkel said her government would double state support for research to €2 billion and offer tax breaks and other incentives to those who buy electric cars.

The aim is to have at least 1 million such vehicles on German roads by 2020, and 6 million by 2030.

"Our goal is to turn Germany into the leading supplier and the leading market," Mrs Merkel told a news conference. The industry itself has pledged to invest €17bn in developing electric cars in the next three to four years.

But the target of 1 million vehicles by 2020 is not especially ambitious, given the current total of 42 million cars in Germany. And the perks being offered by the government are also modest compared with subsidies in other countries.

The government said it would exempt electric vehicles from car tax, reduce insurance premiums, allow the cars to be driven in bus lanes and grant them convenient parking spaces in inner cities. But it has refused a key demand from the manufacturers for a direct purchase subsidy of the kind being offered in France and other countries.

It is a valid argument that the development of the electric car market should largely be left to market forces. After all, German car makers have billions of euros at their disposal to fund research themselves.

But in a country famous for the absence of speed restrictions on its motorways, and where motorists are still captivated by the powerful purr of the cylinders under their bonnets, it will take a lot more than free access to bus lanes and a few euros less tax to wean people off the combustion engine.

A stronger financial incentive is needed to get the market going. Electric vehicles are still significantly more expensive than conventional ones, and their performance and range fall well short. A sizeable purchase grant would have helped give the German electric car market the boost it badly needs. Germany's rivals will be gratified by Mrs Merkel's lack of ambition in this regard.

Without a strong domestic market for electric cars, German manufacturers will have difficulty developing and making vehicles that are globally competitive. If other nations are offering purchase grants, Germany should follow suit.

Mrs Merkel's reticence is difficult to understand given the solid state of Germany's public finances and the fact that she presided over a similar grant in 2009, when the German government introduced a €2,500 payment on the purchase of new small cars to help the struggling car industry during the global economic crisis.

Given the importance of the industry to Germany, it is surprising that Berlin is not taking more forceful action to assist the growth of electric vehicles. The days of conventional vehicle technology are numbered. If Germany is not careful, the outlook for its most renowned industry will start to darken.