The German Government will increase by half the grants available to buyers of electric cars over the five years from 2020.
The hike to subsidies is the latest in a series of measures due to be introduced by minister to speed the adoption of low-emissions vehicles.
The news coincides with the beginning of production of Volkswagen's first model from its dedicated electric 'ID' range - the ID.3 family hatchback - in Zwickau this month.
But while motorists in Germany will be receiving more financial support to help them purchase hybrid and electric vehicles, the UK Government last year reduced its own plug-in car incentive - and has hinted since that it might soon be removed entirely.
Tough deal for Britons: Motorists in Germany will receive bigger grants to help them purchase electric cars while the UK government last year reduced its subsidy
Chancellor Angela Merkel's office said officials and industry representatives agreed late Monday to increase by half the existing government incentives for electric vehicles.
Grants for plug-in hybrids will rise from €3,000 (£2,600) to €4,500 (£3,900).
For vehicles priced over €40,000 (£34,500) the subsidy will rise to €5,000 (£4,300).
German news agency dpa also reported that half of the grants, in future amounting to €6,000 (£5,200), will be borne by industry.
The incentive will also be extended from the end of 2020 currently to the end of 2025.
The government hopes such measures will help it to achieve a target of having 10 million electric vehicles on the roads by 2030.
This is part of a wider offensive designed to turn round the German car industry's perceived laggard status in e-mobility compared to its rivals in the United States and China.
Angela Merkel spoke this week Volkswagen's Zwickau factory south of Leipzig, where the German watched the carmaker start mass production of its ID.3 electric car
Merkel said it was politicians' responsibility to 'create a framework where new technological innovations can take hold'
The ID.3 will cost around €30,000 in Germany and is expected to ring in at just under £30,000 in the UK
The news coincided with chancellor Angela Merkel's speech at Volkswagen's Zwickau factory south of Leipzig, where the German watched the carmaker start mass production of its ID.3 electric car.
'We can now say that Zwickau is a pillar of today's German auto industry and of its future,' Merkel said at the launch.
'Our task as politicians is to create a framework where new technological innovations can take hold.'
The battery-electric Golf-sized family hatchback will have a range of 260 miles between charges and cost around €30,000 in Germany. It's expected to ring in at just under £30,000 in the UK.
Industry experts predict it will be the first volume-selling all-electric model in Europe.
The battery-electric Golf-sized family hatchback will have a range of 260 miles between charges
Industry experts predict Volkswagen's initial 'ID' model will be the first volume-selling all-electric model in Europe
Volkswagen ID.3: Will it fit in my garage?
Model: Volkswagen ID.3 1st
Price: from under £30,000
Available from: Middle of 2020
Motor: 150kW electric motor
Maximum range: 261 miles
Top speed: 99mph
Boot capacity: 385 litres
Germany is increasing incentives, but UK government is reducing grants
While Germany hopes grants will boost the uptake of electric vehicles, the UK government has taken a conflicting approach by reducing its own subsidies for low-emission models.
Just a year ago the plug-in grant was reduced from £4,500 to £3,500 for pure electric vehicles. The £2,500 subsidy for plug-in hybrids was abolished entirely.
Ministers have already hinted in July 2018 that the subsidies for electric cars could be reduced.
In the government's 'Road to Zero Strategy' document, it said: 'As the market becomes better established and more competitive, the need for direct government financial support will decrease.
'We therefore expect to deliver a managed exit from the grant in due course and to continue to support the uptake of ultra low emission vehicles through other measures.'
And in interview in September, transport secretary Grant Shapps said the subsidy will 'go eventually' as the government explores terminating the incentive.
His comment was made just weeks after he himself had benefited from the grant, using it to help with the purchase of his new Tesla Model 3 electric vehicle.
Just a year ago the plug-in grant in the UK was reduced from £4,500 to £3,500 for pure electric vehicles. The £2,500 subsidy for plug-in hybrids was abolished entirely
Official government papers in 2018 said plans are being put in place to 'manage an exit from the grant in due course' and 'support the uptake of EVs through other measures'
While the grant looks set to be scrapped, the government has at least looked to boost the infrastructure for plug-in cars.
It will invest a total of £400 million to help bolster the public charging network, with £70 million used to fund the installation of 3,000 rapid chargers over the next five years.
The German government and industry has also also agreed on targets for publicly accessible charge points, aiming to have 50,000 charging stations nationwide by 2022.
Merkel said the government would invest €3.5 billion (£3 billion) to 2035 in building charging stations for electric cars.
On Sunday she had said Germany needed 1 million charging stations by 2030 and urged carmakers and utility companies to play their part in helping to build the necessary infrastructure.
As part of an auto industry push, BMW plans to build 4,000 electric car charging stations, a source familiar with the discussions said on Monday.
In September, at the Frankfurt auto show, Europe's carmakers warned governments that the EU rules could be disastrous for profits and jobs because mainstream customers were not buying electric vehicles.
German carmakers are accelerating plans to launch electric vehicles, under pressure from a European Union mandate to deliver a 37.5 per cent cut in carbon dioxide emissions between 2021 and 2030, on top of a 40 per cent cut in emissions between 2007 and 2021.
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