What happens if a government yanks generous incentives to buy electrified cars? Sales crash. At least they do in the Netherlands. The tiny country was the European sales leader for plug-in hybrids in 2015, thanks to government tax cuts for company-car drivers.
But last year, those tax cuts were scaled back significantly. Sales in 2016 halved to below 20,000, and the Netherlands went from being far and away the most important European market for the technology to third, behind the U.K. and Norway, according to JATO Dynamics.
The incentives were too generous. Company-car drivers paid as low as 7 percent of the car's sticker price in tax, compared with 25 percent for an average car. That was worth 6,000 to 7,000 euros ($6,300-$7,400) a year to them, far outweighing the fuel-saving cost. Suddenly, cars such as the Volvo XC90 T8 plug-in hybrid crossover became cost-effective.
But few drivers were actually plugging them in, something the government spotted when it looked at average fuel-consumption data from the fuel cards most company-car drivers use at gas stations there. Far from reducing carbon dioxide as the government intended, the incentives were likely making the situation worse.
The lowest tax rate for plug-in hybrids was increased to 14 percent, and the boom ended. The reduced incentive couldn't offset the high sticker price, the hassle of charging and limited choice, JATO analyst Felipe Munoz said. "The only real advantage plug-in hybrids have is the incentive they can get," he said.