Electric car mandates, subsidies and other incentives come and go. Sometimes they go up, and sometimes they go down.
In Sweden, they are going up on July 1, 2018. The headline number is that they go from 40,000 SEK to 60,000 SEK per pure battery-electric vehicle (BEV). You buy the car, and then after six months you can get the subsidy.
How much is 60,000 SEK? Right now, the exchange rate is 8.82 to the US Dollar, so that would make the amount $6,803. That’s up from the $4,535 that’s the BEV subsidy before July 1, 2018.
In comparison, the U.S. amount is $7,500, but that’s a “use it or lose it” tax credit, so all people may not be eligible. Then again, if you lease the car -- which most U.S. non-Tesla EV drivers do -- it gets captured into a lower lease price even if you wouldn’t have had an offsetting tax liability.
Of course, some states in the U.S. also have additional state rebates and other incentives in the forms of everything from sales tax exemptions to carpool lane access. Yet other indirect incentives include free charging at work, in turn a product of tax incentives.
In Sweden -- and many other countries like Sweden -- there are also additional incentives to go electric. The most significant one is of course the high taxes on gasoline and diesel, which are dramatically higher than in the U.S.
However, there is also another side to the EV incentive story, that takes into effect on July 1, 2018. The $6,803 EV subsidy is the “carrot”, but the “stick” is an annual road tax that, depending on what the car emits, will go up to 25,000 SEK per year from the documents I have seen, at least for the first three years of ownership. That’s up to $2,834 per year.
Of course, the outcome is not binary. It’s not as if all cars will either get a $6,803 one-time subsidy, or be faced with $2,834 per year in taxes. Most cars will be somewhere between those two extremes.
That said, it seems as if any pure electric car (BEV, battery-electric vehicle) will get the full $6,803 subsidy. On the flip side, only the most fuel-inefficient (non-hybrid) diesel and gasoline vehicles will have to pay at or near $2,834 per year in road taxes.
This basically divides the Swedish car market into two: Losers and winners, from the new legislation. If the vehicle is on the winning side, it’s just a matter of whether it will get somewhere between zero and $6,803 as a subsidy. If it’s on the losing side, it’s just a matter of how much the increase in road tax will be, as you might be stuck with something close to $2,834 per vehicle per year in tax.
Let’s start by looking at Sweden’s sales chart for plug-in vehicles as of May 2018:
Here are the top-ten best-selling plug-in cars in Sweden so far this year (first five months):
VW Passat GTE -- 1,775
Volvo XC60 PHEV -- 963
Kia Optima PHEV -- 923
Mitsubishi Outlander PHEV -- 881
Volvo V60 PHEV -- 840
Kia Niro PHEV -- 822
Nissan LEAF -- 490
Volvo S/V 90 PHEV -- 399
Renault Zoe -- 343
BMW 330 PHEV -- 290
As you can see from this list, there are only two BEVs -- Nissan LEAF and Renault Zoe -- and they are not in the top. They are number seven and nine. All the others are PHEVs.
And yes, there is no Tesla in the top-ten.
Until now, PHEVs got 20,000 SEK -- half of the BEV 40,000 SEK amount. Now, while BEVs will get 60,000 SEK, some PHEVs will also see a higher amount than last year’s 20,000 SEK.
Let’s take the example of the number three on the list above, the Kia Optima PHEV. Until now, it got 20,000 SEK. Starting July 1, it will get 32,511 SEK. That is very similar of an increase, on a percentage basis, as the BEV models, whose subsidies increase from 40,000 SEK to 60,000. It’s close to 50% for both, in terms of an increase.
Therefore, one might suspect that a car such as the Kia Optima PHEV will continue to do very well on the Swedish plug-in sales charts. Of course, in absolute terms -- as opposed to relative, inside the plug-in category -- it should see a huge increase in sales, given the disincentives to buying a non-plugin car in the first place.
If you look at the U.S. plugin sales chart, you will see that the Toyota Prius PHEV is firmly in the number two position, well ahead of the third player: Monthly Plug-In Sales Scorecard
However, in Sweden, the Toyota Prius PHEV does not appear, even on the top-20 plug-in sales list. That’s strange, isn’t it? I guess people in Sweden really don’t like this Prius. Perhaps it’s because it has only four seats? (instead of the customary five) Given that the more expensive BMW i3, which also has only four seats, is number 13 on the list, that doesn’t sound like a plausible explanation either.
In any case, what happens to the Toyota Prius PHEV with the new system that takes into effect July 1? It used to get 20,000 SEK, just like the Kia Optima PHEV.
With the new system, in which all PHEVs don’t get the same amount (20,000 SEK), the Prius PHEV jumps to 41,667 SEK. That’s more than the Kia Optima’s jump from 20,000 to 32,511 SEK.
With this new difference, perhaps we will see the Toyota Prius PHEV start to rise in the Swedish plug-in sales charts after July 1. But why is the Prius PHEV getting a larger jump in subsidy than the Optima PHEV? The reason is that it is more frugal, and under Sweden’s new PHEV regulatory regime, that brings the car a bigger subsidy.
Therefore, this becomes something to watch in the coming month: What amount does each of the PHEVs get under the new system? I will be following up with a complete article on this, hopefully by August or September.
What about “regular” (non plug-in) hybrids?
It looks like the minimum tax they can get away with is the “base” 360 kr per year road tax. That’s basically $41 per year. One can almost call that “nothing.”
Let’s look at what may be one of Toyota’s most popular hybrid cars in Europe, the Auris. It will now be hit with a 360 SEK per year road tax, up from zero until now. However, a Volkswagen Golf diesel will be hit with a 2,563 kr ($291) annual tax. Perhaps not huge in absolute terms, but not totally insignificant either.
The de-facto tax-free status (360 kr per year) of the Toyota Auris also stretches into the subcompact crossover segment. The Turkey-built Toyota C-HR pays the same nominal 360 kr, but the difference when compared with the home-favorite Volvo XC40 T5 (even though it’s built in Belgium) becomes stark, because the Volvo is hit with a 6,618 SEK annual tax. That’s $750.
So, $41 per year vs $750. Hmm.
I can see that having an impact -- in Toyota’s favor.
Of course, there are other differences between the Toyota C-HR and the Volvo XC40, ranging from interior space to infotainment and design, but I think you can get the point: Hybrids may no longer be outright subsidized on an absolute level, but they will get taxed a lot less than non-hybrids. It makes hybrids relatively more attractive -- at least as long as we don’t compare them to BEVs and PHEVs.
Not all hybrids get away with paying the basic 360 SEK annual road tax, however. The Toyota RAV4, which in the U.S. has basically overtaken the Prius as the hybrid of choice, consumes so much, that it goes from 514 SEK under the old system, to 2,246 SEK under the new. That’s a big jump, on a percentage basis.
Still, 2,246 SEK is not only dramatically below the aforementioned 6,618 SEK tax Volvo XC40, on a percentage basis, but even further below something like the Volkswagen Tiguan 180 DSG, which gets hit with 7,260 SEK per year in new road tax. The Toyota RAV4 hybrid basically goes for 69% less, tax-wise.
Conclusion: Four implications for the Swedish car market
Sales of BEVs should go up, given the 50% increase in subsidy.
Some PHEVs get an increase in subsidy, but not all with an equal amount. Some may even see a decrease. Therefore, sales impact should also vary, but on a net basis will likely be up almost as much as BEVs.
Some hybrid cars will get a “de facto” zero tax, but also zero subsidy. Yet other hybrids will also pay at least a little bit of the tax hike. On a net basis, sales should be up.
Gasoline and diesel cars with no hybrid of any kind, will see huge increases in annual road tax. That should increase sales of anything with at least “hybrid” in the name, and PHEVs and BEVs likely even more. Any car that is not electrified, will likely see a decrease in sales.
Which brands and models are likely to gain the most? It seems like the Swedish market is geared mostly to higher-end brands, and has an affinity for European brands such as BMW, Audi, Mercedes and Volvo.
The obvious winner in the Swedish market in the second half of 2018, and into the first half of 2019 will be the Jaguar i-Pace. It’s premium, it’s all-wheel drive, and it’s a BEV. However, Jaguar is not a strong brand with a great dealer network in Sweden.
In contrast, the Audi eTron, which becomes available 4-6 months after Jaguar, might do a lot better given its superior dealer network in Sweden. This would be followed in 2019 by Mercedes EQC and the first proper Volvo BEV.
The other consideration is that the automakers will need to have enough volumes available to meet demand. We have plenty of stories of some BEVs that have not seen much allocations to some markets -- not necessarily Sweden, as it’s a tiny BEV market, but perhaps Norway as the better example.
For example, will the Jaguar i-Pace and Audi eTron be available in sufficient quantities? Will Mercedes EQC and Volvo? Will Tesla? (NASDAQ:TSLA)
The simple fact is that we do not know those things yet. I will be reporting on them in the second half of 2018 and into 2019.
All that said, the impact will still likely be significant already in July-August. Many consumers may have been unaware of what is coming, in terms of regulatory change. When they find out, what will be the political impact?
Disclosure: I am/we are short TSLA.
Additional disclosure: At the time of submitting this article for publication, the author was short TSLA and long GOOGL. However, positions can change at any time. The author regularly attends press conferences, new vehicle launches and equivalent, hosted by most major automakers.