Norway proposes widening EV tax to include mass-market Tesla models

By Terje Solsvik and Nora Buli

OSLO (Reuters) -Norway plans to eliminate its main subsidy for electric vehicles over the next two years, the government said on Wednesday, adding thousands of dollars to the cost of new cars like Tesla's Model Y, the country's top-selling automobile.  

Fully electric vehicles accounted for a record 98.3% of all new cars sold in the Nordic nation last month, registration data shows, in line with a long-held aspiration in Norway of ending the sale of petrol and diesel combustion engines by 2025.

To speed up the transition, oil-rich Norway for years exempted EVs from all taxes applied to combustion-engine vehicles, a policy that came at a cost of billions of dollars annually in lost revenue for the state.

EV GOAL ACHIEVED, TIME TO PHASE OUT SUBSIDIES

In 2023, however, it introduced a 25% value-added tax on the portion of an EV's price over 500,000 crowns ($49,508), affecting mostly high-end models such as the BMW iX, Tesla X and Porsche Taycan, while shielding mass-market cars.

For Tesla's mid-range EVs, only the most expensive so-called "performance" four-wheel drive version of the Model Y is currently subject to VAT, the company's website shows.

But in 2026, Norway plans to lower its EV tax exemption to 300,000 crowns, the government said on Wednesday, and begin collecting VAT on all versions of the Model Y and similar-priced mid-market cars like Volkswagen's ID.4.

In 2027, the final VAT exemptions will be removed altogether, the government said, subjecting all EVs to the full tax if parliament approves the plan, which was included in the proposal for next year's budget.

At the same time, the government proposes to increase the one-time levy charged at the point of initial registration for fossil fuel-powered vehicles to maintain the overall incentives for choosing electric cars, it said.

"We have had a goal that all new passenger cars should be electric by 2025, and with an electric car share of 95% this year, we can say that the goal has been achieved in practice," Finance Minister Jens Stoltenberg said in a statement.

"Therefore, the time is ripe to phase out the benefits."

MORE SPENDING FROM WEALTH FUND

The government rules in a minority and will need to negotiate its budget proposal with four parties in parliament, including the Greens.

The Model Y, Norway's best-selling car in each of the last three years, currently starts at 422,000 crowns for the cheapest version and could therefore be subject to VAT of 30,500 crowns if a 25% rate is applied to the portion exceeding 300,000 crowns.

If the VAT exemption is eliminated the following year, it would add another 75,000 crowns to the cost of the car.

The government, meanwhile, proposed increasing spending from the sovereign wealth fund to 579.4 billion crowns in 2026, from a revised 534.2 billion in 2025, to help cover public expenses.

The finance ministry revised upward its economic growth projections excluding the oil industry to 2.0% this year and 2.1% in 2026, and sees core inflation at 2.9% this year, easing 2.5% in 2026.

($1 = 10.0994 Norwegian crowns)

(Additional reporting by Gwladys Fouche; Editing by Anna Ringstrom and Joe Bavier)