“Scrapping Bonus 2.0” - Stimulus Measures will Accelerate Switch to Electric Cars

Dear Shareholders & Friends,

In the “Corona Crisis”, politicians are giving preference to measures that have already proved successful in the past in order to mitigate economic damage. In Germany, these include Kurzarbeit, or short-time working allowances. There has also been good experience with the so-called "scrapping premium," which was officially called an “eco-rebate.” In 2009, 2,500€, the equivalent of around $2,750, was paid for an old vehicle that was scrapped - if the owner bought a new car.  

Now similar programs are being called for again. What is clear is that after the extensive aid for companies, which is primarily intended to secure their liquidity, economic stimulus packages must follow. It is becoming clear that these will be linked to measures to combat global warming. In many countries the climate debate was a dominant political theme before the outbreak of Covid-19.

What is clear is that the automotive industry is suffering massively from the Corona Crisis. The Institute for Customer Insight at the University of Sankt Gallen (Switzerland) predicts an overcapacity of 25% for next year compared to 2018 levels. Demand therefore urgently needs to be stimulated.

Scrapping bonus 2.0

Volkswagen and BMW have already called for incentives for car purchases. The car managers also advocate the environmental component. BMW’s boss, Oliver Zipse, told the German Press Agency: "We see a double opportunity in an innovation bonus: as an economic stimulus measure, it can boost the economy and at the same time accelerate the customers' switch to climate-friendly technologies."  

The politicians blow the same horn. In a newspaper interview about a possible economic stimulus package, Germany’s Federal Minister of Finance, Olaf Scholz, said: "We want to push ahead with the technological modernisation of our country and create the conditions to enable us to be climate-neutral in 2050."

Stephan Weil, the Minister President of Lower Saxony, is even more explicit. He clearly advocates ecologically oriented purchase incentives. Weil told the Hannoversche Allgemeine Zeitung: "Above all, the transition to environmentally friendly engines can be accelerated considerably and the automotive industry can be supported in its structural change." The State of Lower Saxony is a major shareholder in Volkswagen and Weil is a member of the Group's Supervisory Board. It is obvious that it would be hard to get across to voters if the purchase of diesel vehicles were to be subsidized again by the state following the fraudulent use of cut-off devices.

Subsidy will benefit E-Cars in particular

So far, support measures for environmentally friendly drive systems have been discussed in an undifferentiated manner; however, it is obvious that this is primarily about electric cars. One reason is that China, the world's largest car market, also favors electric drives. It would hardly make sense to promote a technology in Europe that is not in demand in the People's Republic. On the other hand, the car companies will have to focus. They are losing a lot of money due to the Corona Crisis. Daimler, BMW and Co. will hardly be able to develop different environmentally friendly drive systems in parallel in the future. So far, electric cars with lithium-ion batteries are the most advanced.

They also perform best in terms of energy efficiency. The efficiency of hydrogen vehicles is just 35%, while electric cars put 95% of the energy they charge on the road and their eco-balance is increasingly improving. In Germany, more than half of the electricity is already generated from renewable energy sources. The battery factories that are currently being built, especially in Europe, are state-of-the-art production facilities that are naturally more ecological than older factories.  

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