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2018 Management Letter – Electric vehicle purchase grant

Feb 26, 2018

Symbolbild - Elektromobilität

0 Executive Summary
The federal government set the target of boosting the sales of electric vehicles. This also includes a grant scheme to help reduce air pollution and increase the demand for at least 300,000 additional zero emission vehicles. On 1 July 2016, the Federal Ministry for Economic Affairs and Energy (the Ministry) issued the directive on incentives on increasing the demand for electric vehicles in the Federal Gazette. The directive entered into force on 2 July 2016 and will expire on 30 June 2019. In accordance with this directive, a purchase grant (referred to as an environmental bonus) is paid towards new battery electric vehicles (€4,000) and new plug-in hybrids (€3,000). The Federal Government and the car manufacturers are each to pay half of the bonus. Grants can only be paid up to €600 million which is the federal budget amount available in line with the operating budget of the Energy and Climate Fund. The Federal Office for Economic Affairs and Export Control (the Federal Office) has been conferred responsibility for managing the programme.

We reviewed the electronic vehicle purchase grant scheme (environmental bonus). The Ministry commented on our preliminary findings in its letter of 18 December 2017. Taking into account the Ministry’s comments, we have developed the following final findings pursuant to Section 96, para. 4, sentence 1 of the Federal Budget Code:

0.1
German car manufacturers have exerted substantial influence on the Federal Government’s decision to grant an environmental bonus and on its terms and conditions. The car manufacturer’s demand for an environmental bonus scheme has been based on a study commissioned by the automotive industry. At first, the Federal Government had favoured a bonus-malus system based on carbon emissions or a binding electric vehicle ratio for automotive manufacturers.

We alerted the Ministry to the risk of third parties exerting influence on macroeconomic decisions – in particular if they benefitted from such decisions. We continued that before adopting grant directives, the Ministry should have thoroughly reviewed to what extent the automotive industry’s demand was based on pertinent grounds. In doing so, the Ministry would have to determine, structure and prioritise the factors governing decision-making and to provide, reliably assess and document any alternative options. This would also have included unbiased mission performance.

The Ministry responded that the government departments responsible for electric mobility had worked together closely with stakeholders from the private sector industry, academia and civil society and within the framework of the National Platform on Electric Mobility. As a result, a number of stakeholder groups had been involved in addition to the government departments. The Ministry stated that this approach had maintained and ensured unbiased decision-making. The Ministry stated further that there was no evidence to suggest that the applicable requirements of impartiality and objectivity had not been appropriately taken into account.

The statement of the Ministry does not refute that car manufacturers have exerted influence on the nature and amount of the purchasing incentive. The fact that the Ministry did not identify any evidence of such an influence does not mean that there has really been none. Therefore, we maintain our position. We emphasise that the Ministry has the duty to perform its task in an objective and impartial way and reiterate our demand that the Ministry needs to assess and document the decisions made in a transparent manner.

0.2
The Ministry did not provide a reliable justification for its additional staffing needs for grant management. We demanded that the Ministry needed to remit the funds for established posts that it had assigned to the Ministry in spite of insufficient justifications submitted.

The Ministry emphasised that staff assessment was a difficult exercise when taking over a new responsibility. For example, not all final details of the directive and their impact had been known at that time. Although the administrative burden for implementing the environmental bonus scheme was currently lower than expected, it was more than set off by other tasks associated with the entire electric vehicle government programme. The staffing requirements assessed at that time were still accurate.

We hold that in the long term it is no good practice to assess and justify staffing needs merely on the basis of a list of tasks or responsibilities. This is all the more so true when key functions have been shifted as compared to earlier staffing demands. The parliamentary Public Accounts Committee of the Budget Committee also concurs with our view. By resolution of 28 April 2017, the Public Accounts Committee demanded that the Ministry continuously conduct task reviews of its organisational units responsible for moving to clean energy and to regularly assess staffing needs. We intend to follow up in a separate exercise on how the Ministry has implemented this resolution.

0.3
The Federal Office used the number of applications projected for a period of one year to estimate staffing needs for implementing the directive. However, since the grant scheme has been launched, the number of applications has been much lower than projected. By the end of September 2017, for instance, 73 per cent less applications were submitted than projected. A reliable assessment of staffing needs was still pending.

We expected the Federal Office to adapt its staffing levels to actual needs.

The Ministry was of the opinion that establishing the Federal Office’s unit step by step had proven successful. The Ministry stated that at the time of our audit, a staffing assessment on electric vehicles was under way. In addition to staffing needs, processes would also be reviewed. The Ministry expected the results to become available by December 2017.

We urge the Ministry to submit the relevant results to us for final assessment.

0.4
The base model list price is used to calculate the car manufacturers’ share in the environmental bonus. The vendor shall deduct from this price a discount for purchasers of at least €2,000 for pure electric vehicles and €1,500 for plug-in hybrids. Depending on the respective model and irrespective of any environmental bonus, purchasers are granted discounts on list prices of new vehicles. These discounts exceed the environmental bonus granted by car manufacturers by far – as is currently shown by the diesel scrappage scheme. Car manufacturers genuinely encourage buyers to switch to zero emission vehicles only if they offer purchase incentives such as discounts of more than €1,500 and €2,000, respectively. Our audit findings suggested that the share of the environmental bonus to be borne by automotive manufacturers was often offset against other applicable discounts. In this respect, it is doubtful if car manufacturers have actually shouldered their burden in the voluntary vehicle retirement programme.

To boost the demand for zero emission vehicles, we urged the Ministry to help ensure that car manufacturers did not reduce their burden in the voluntary accelerated vehicle retirement programme by offsetting it against other purchasing discounts normally granted. The purchaser of a new vehicle should be able to identify the amount the automotive industry contributed in addition to the usual discounts. This could increase transparency of funding and help a potential purchaser make an informed decision.

The Ministry stated that the automotive industry had made the point that due to high development costs of electric vehicles, it would only profit little or not at all from the scheme. This had worked as a potential barrier and disincentive to the sale of electric vehicles.

According to the Ministry, it was not able to compare discounts granted in the past and today. The Federal Office could only verify the manufacturer discount granted in the purchase contract.

We hold that against this background the voluntary vehicle retirement programme was likely to fall far short of expectations. In addition to the lacking motivation of manufacturers and vehicle dealers, lacking transparency also affects the client’s motivation to purchase electric vehicles. We still consider the purchase grant scheme with concern and have made the point for our position at the hearing during contradictory procedure. If manufacturers and vehicle dealers face major disincentives to the sale of electric vehicles and clients to purchase these vehicles, the added value of the environmental bonus scheme needs to be questioned.

0.5
The directive stipulates a threshold of a model list price of €60,000 for electric vehicles to qualify for grants. Vehicles no longer offered as a base model – as in the case of one car manufacturer – should no longer be included in the list of eligible vehicles. Furthermore, we recommended verifying compliance with the six-month deadline.

The Ministry stated that the Federal Office was reviewing the case brought forward by us. The purpose was that either the alleged suspicion that the base model had not been available should be dispelled or the bonus should be recovered in a legally safe procedure. The results were still pending and would be submitted to us in due course.

We urged the Ministry to submit the results in a timely manner for final assessment.

0.6 

In contrast to purchasing contracts, leasing contracts do not list the net base model purchase price. However, this price is the basis for assessing the automotive industry’s contribution to the environmental bonus as stipulated in the grant directive. That is why so far, in the case of leased vehicles, the Federal Office had used a workaround to verify whether car manufacturers had paid their share of the environmental bonus.

We demanded excluding financing schemes from the grant scheme that do not comply with regular documentation requirements set by the grant-awarding procedure.

According to the Ministry, the Federal Office assesses the car manufacturer’s share in the environmental bonus also in the case of leasing contracts. The Ministry continued that the number of documents to be prepared by the vehicle dealers or leasing companies exceeded those stated specifically in the grant directive.

Irrespective of the number of documents to be submitted, in the case of leasing contracts, it is impossible to decide on vehicle grant eligibility because it is impossible to identify whether the net purchase price is higher or lower than the base model list price. Grants for leased vehicles are currently not in line with the requirements of the grant directive even if the car manufacturers have paid their contribution to the environmental bonus. We reiterate our demand to exclude financing schemes from the grant scheme that do not comply with regular documentation requirements of the grant-awarding procedure.

0.7
The environmental bonus was used far less than projected. The monthly number of applications increased from approx. 1,500 to approx. 3,150 applications in average compared to the six months in 2016. Based on the number of applications submitted in December 2017, the earmarked funds are sufficient to cover the period until the beginning of 2023. However, the grant scheme is to expire by mid-2019.

We urged the Ministry to review the grant scheme after more than one third of the funding period and take into account our advice. The Ministry should compare the expectations associated with public funding to the actual impact achieved to identify the need for modifications if any. In its review, the Ministry should pay due regard to the Federal Government’s subsidy policy guidelines.

Based on the number of applications submitted in 2017 and assuming the grant and framework conditions to remain the same, the Ministry expected more than 80,000 applications in 2018 and more than 70,000 applications in the first six months of 2019. This would result in a total of approx. 200,000 applications.

According to the Ministry, a wider choice of vehicle models offered by car manufacturers, an enhanced charging infrastructure, amended regulatory frameworks and awareness-raising for motorists had resulted in an increased use of the grant scheme beyond this projection. The Ministry expected this rising trend of applications to continue as a result of the increased debate on urban clean air programmes along with the second local government summit scheduled at the Federal Chancellery for 28 November 2017.

From our point of view, the Ministry’s calculations do not permit drawing the conclusion that the Federal Government can achieve the target set for this grant scheme of receiving approx. 300,000 applications by the end of the funding period. According to estimates of the Federal Office, this is due to the continuously high purchase prices of electric vehicles and the insufficient charging infrastructure. We therefore reiterate our recommendation. The Ministry should conduct a mid-term review of the grant scheme. The Ministry should also compare the expectations associated with public funding to the actual impact achieved to make the modifications needed.

Symbolbild - Elektromobilität

The federal government provides purchase grants for electronic vehicles and plug-in-hybrids of €600 million. The support grant is to be topped up by a supplementary grant of the same amount furnished by car manufacturers.

German car manufacturers have exerted considerable influence on the federal government decision to develop and shape this grant towards making cars greener. Our audit findings suggest that the purchase grant share to be borne by car manufacturers is often offset against standard discounts in place. We doubt that car manufacturers really provided a genuine share to the grant. The federal government also included electric car leasing in its grant scheme although the documents qualifying for grant eligibility could not be presented. Motorists made much less use of the purchase grant than projected. By July 2018, rather than the projected 300,000 applications, only some 70,000 had been submitted.

We alerted the Federal Ministry to the risk associated with letting third parties exert influence on overall economic decision-making. This is especially true if such third parties have drawn monetary profits from this. We demanded the Ministry to conduct a mid-term review of the grant scheme and make modifications as needed. The Ministry should perform its regulatory responsibility in an unbiased and neutral way. This also means to step up efforts to encourage car manufacturers to produce more electric vehicles.

In May 2016, the Federal Government had adopted the environmental bonus. The grant scheme was effective from 2 July 2016 and will run until 30 June 2019.

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