Can subsidies increase the spread of electric cars?

The Hungarian Minister of Economy plans to create a large-scale subsidy plan to promote the spread of electric cars.

Across Europe, purchase subsidies for electric cars have been discontinued, primarily because the subsidies also helped the spread of an increasing number of Chinese-made vehicles.

The pace of electric car adoption has slowed considerably across Europe, and economic experts and politicians alike have now realized that major European car manufacturers are lagging far behind Chinese developments, meaning that the spread of electric cars will not put their own European industry in a more advantageous position and this could cause economic difficulties in the already underperforming European Union.

Currently, there is one grant opportunity in Hungary for the purchase of electric cars, which provides support to businesses, sole proprietors and taxi drivers for the purchase of new, all-electric cars. The amount of the subsidy depends on the capacity of the car’s battery: Under 41 kWh: maximum HUF 2.8 million, Between 41-59 kWh: maximum HUF 3.6 million, Over 59 kWh: maximum HUF 4 million.

The grant only applies to new, all-electric cars. Hybrid and plug-in hybrid cars are not eligible. The average prices of the supported power cars range from HUF 9 million to HUF 25 million, depending on the type.

According to the Central Statistical Office, there were 4,141,267 passenger cars in Hungary in 2023, of which 0.9% were all-electric. Car manufacturing is currently an important part of Hungary’s industry, with Suzuki, Audi and Mercedes manufacturers’ output expected to reach 25% of GDP in 2023.

The Hungarian economy is therefore currently dependent on the performance of the existing car factories. The Hungarian government’s industrial development plans primarily focus on the development of battery production, with the aim of becoming the world’s fourth largest battery manufacturer by 2027 with a capacity of 194 GWh. Significant state subsidies are available to new manufacturers, estimated to be worth several billion euros.

The realization of the Hungarian government’s plans is highly dependent on a significant and sustained increase in electric car sales.

Currently, there are no protective tariffs in the European Union, including Hungary, specifically for Chinese electric cars and batteries. The EU currently acts in accordance with the rules of the World Trade Organization (WTO), which prohibit discriminatory tariffs.

However, the EU has launched an investigation into state aid for Chinese electric vehicles, as there are suspicions that the Chinese government is giving unfair advantages to domestic manufacturers. If the EU finds that Chinese electric cars are indeed receiving unfair state aid, it could impose protective tariffs on them.

In addition, the EU plans to introduce new regulations on batteries, aimed at promoting more sustainable and ethical battery production. This regulation is expected to include stricter environmental and social standards, which Chinese manufacturers will also have to comply with if they want to sell in the EU.

The Hungarian Minister of Economy is planning a comprehensive sales support system and intends to submit it to the European Union, but the Hungarian Government’s lobbying opportunities in the EU are limited and it is not certain that the introduction of a unified support system would find sufficient support and could be implemented in a short period of time.