TSLA Tesla Inc

By William Boston 

BERLIN--Earlier this year, a top aide to Chancellor Angela Merkel fired a question at German auto chiefs during a closed-door meeting on the country's most important industry: What are you going to do about Tesla?

The answer emerged Wednesday, after the German government and the chief executives of Volkswagen AG, BMW AG and Daimler AG agreed to kick-start Germany's sluggish electric-car market.

Under the plan, anyone who purchases a new electric car will be eligible to receive a rebate of EUR4,000 ($4,519) for a battery-electric car or EUR3,000 for a plug-in hybrid.

The government agreed to provide slightly more than EUR1 billion to subsidize new electric car purchases and finance expansion of a network of public charging stations. In exchange, car makers agreed to pay half the costs of the subsidies and step up investment in research and development of batteries and other technology.

The hitch: only electric cars with a price tag below EUR60,000 are eligible for the cash incentive.

That is a bone tossed to conservative critics of the plan who wanted to avoid allowing well-heeled consumers to finance purchases of electric versions of expensive luxury cars with taxpayers' money.

But it also erects a wall to keep Tesla Motors Inc., the U.S. upstart, from gaining a foothold in Europe's biggest car market with its current lineup of luxury electric cars.

In 2015, Tesla's Model S luxury sedan ranked third behind the Renault Zoe and the Nissan Leaf in unit sales of battery-electric cars in the European Union. Volkswagen's e-Golf came in fourth place and BMW's i3 city car a distant sixth.

The automobile was invented in Germany and 150 years later it is the country's most important industry, providing one in every seven jobs and the lion's share of industry-related research and development.

Now, the government fears that Germany's leadership is threatened by a massive change in the industry that is leading to the emergence of electric car startups like Tesla and new technology players from Silicon Valley and Asia.

It's not just electric cars. As German engineers work on developing self-driving cars, big tech firms like Google parent Alphabet Inc. and Apple Inc., in addition to other car makers, have emerged as competitive threats.

"The reinvention of the automobile is mainly being driven by companies that do not have their headquarters in Germany," Sigmar Gabriel, Germany's economy minister and leader of the Social Democrats, told reporters.

Mr. Gabriel, junior partner in Chancellor Merkel's center-right coalition government, compared the government's decision to support development of electric cars with moves in the 1960s to create Airbus, the European maker of large jetliners, to protect aviation jobs and prevent the U.S. from building a monopoly.

"Back then, we provided massive assistance," he said. "And today we are in a similar situation."

Production of the most important component in the electric vehicle, the battery, is dominated by large Asian manufacturers such as Samsung Electronics Co., LG Electronics Inc. and Panasonic Corp.

Germany's electric-vehicle plan includes aid for research and development of next-generation battery technology and a commitment from German car makers to develop the technology at home.

Tesla, which only began making cars a few years ago, has become the most respected brand in the new electric car sector. Its battery-powered Model S sedan has even outsold Mercedes' iconic S-Class luxury sedan in some markets.

Now, Tesla is preparing to launch a mass-market battery-electric car called the Model 3. When the company unveiled the plan recently, nearly 300,000 customers paid Tesla $1,000 to preorder the car.

Some analysts see the Model 3 as a more serious threat for Germany's car makers. With a price tag of around $35,000 it will be affordable for a larger group of consumers.

Initially, opposition to supporting the German car industry was strong. German Finance Minister Wolfgang Schäuble was a staunch opponent, saying it's not the state's job to sell cars.

The auto industry lobbied hard. BMW Chief Executive Harald Krüger met Mr. Schäuble in his office at the finance ministry in March to press the industry's case. The enormous response to Tesla's preorder campaign for the Model 3 melted any remaining doubts about the need for urgent action, according to a person familiar with the situation.

The German plan is nearly tailor-made to stop Tesla. Besides the cap on the ticket price, the rushed timing and limited duration of the plan means it will be over before Tesla's Model 3 is launched.

"It's first come, first served," Mr. Schäuble said.

Write to William Boston at william.boston@wsj.com

(END) Dow Jones Newswires

April 27, 2016 11:01 ET (15:01 GMT)

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