Denmark does U-turn on cutting EV tax relief to curb falling sales

The prolonging of tax breaks aims to reverse a decline in Denmark’s electric vehicle sales.

Electric vehicles sales are hitting rock bottom in Denmark, a renewable energy pioneer.

This is according to the latest research from the European Automobile Manufacturers Association (ACEA) which shows that sales of Electrically Chargeable Vehicles (ECV), which include plug-in hybrids, dropped dramatically by 60.5% in the first quarter of 2017, compared with the first three months of 2016.

This is in direct contrast to its neighbour, Sweden, which has seen an increase of nearly 80% in sales. In fact, the European Union’s sales are increasing by 30% on average.

The ACEA says that the figures suggest electric vehicles are not attractive enough without some form of subsidy in place.

Phase out of tax breaks to blame

In 2015, Denmark bought 5,298 ECVs - more than double the amount sold that year in Italy which has a population of more than 10 times the size of Denmark's.

In 2015, the Liberal-led government of Prime Minister Lars Lokke Rasmussen announced the progressive phasing out of tax breaks on electric vehicles (EVs). The government’s reason for this was budget constraints and the desire to level the playing field.

Again, in contrast, Sweden enjoys a wide range of subsidies, including a five-year tax break and a $4,600 (40,000 kroner) purchase premium.

Tesla, which was enjoying much success with its EV sales in Denmark, understandably protested the decision to phase out tax breaks. Four years ago, the Tesla Model S led the way in Norway with record sales figures eclipsing Nissan LEAF’s.  

Even Laerke Flader, Head of the Danish Electric Car Alliance, recognised that the new tax regime "completely killed the market" because “price really matters.” Tax Minister Karsten Lauritzen said in a statement: "It’s no secret electrical vehicle sales have been below what we expected a year and a half ago. The agreed phase-in has turned out to be hard and that likely halted sales."

According to the government’s original plans, tax breaks were going to be phased out from 2016 to 2020, when they would be treated in the same way as fossil fuel-powered vehicles. However, the government changed its rules in April due to the severe drop in sales.

The new rules mean the transition to a post-subsidy era has been postponed until at least 5,000 new EVs are sold over the 2016-2018 period. Tax breaks will be progressively removed as of 2019, regardless of sales numbers. The plan envisages a 40% registration tax less $1,500 (1000 kroner) deduction in 2019, with the tax rising to 65% in 2021, 90% in 2021 and 100% in 2022.

Electric vehicle market uncertainty

The Danish government's turnaround has created market uncertainty. Many potential customers have either postponed or walked away from an EV purchase. EV dealers have also held back on their sales drive as a result.

According to Flader, the electric car industry doesn't want to invest in a market that ‘may not be there next year. They'd rather invest where conditions are better and predictable long-term.’

Flader anticipates a recovery in sales as soon as dealerships are allowed to advertise tax-free prices again.