Japan cuts subsidies for electric cars
The Japanese government has decided to reduce the government purchase subsidies for electric vehicles at the turn of the year. For new registrations starting from January 1, 2027, the subsidy limits for electric cars, Kei-EVs, plug-in hybrids, and fuel cell vehicles will be significantly lowered. This decision is driven by the high demand for the subsidy program in Japan.
Nissan Sakura electric Kei-car
Image: Nissan
The Japanese Ministry of Economy, Trade and Industry (METI) announced on October 21 a revision to the subsidy program for so-called Clean Energy Vehicles (CEVs). The new subsidy rates will apply starting in January 2027 to vehicles newly registered from that date, provided the current subsidy program continues beyond that period. With this adjustment, the government aims to utilize available funds for as long as possible.
The upper limit for battery-electric cars drops from the current 1.25 million yen (about 7,000 euros) to 750,000 yen (about 4,200 euros). For electric Kei-cars, Japan’s category for particularly compact and lightweight vehicles, the subsidy ceiling is reduced from 550,000 yen (about 3,100 euros) to 440,000 yen (about 2,500 euros). For plug-in hybrids, it falls from 800,000 yen (about 4,500 euros) to 480,000 yen (about 2,700 euros). Fuel cell vehicles will now receive a maximum subsidy of 870,000 yen (about 4,900 euros) instead of the previous 1.45 million yen (about 8,200 euros). These amounts refer to the highest subsidy level and do not include additional bonuses for specific manufacturer initiatives.
Japan: Subsidy amounts for electric cars drop significantly
The cuts vary depending on the type of propulsion system. For regular electric vehicles, plug-in hybrids, and fuel cell cars, the new ceiling is 60 percent of the previous value. For Kei-EVs, it is 80 percent. The actual subsidy amount still depends on the specific vehicle model and its evaluation based on the program’s criteria. Therefore, the mentioned ceilings should not be equated with the subsidies that buyers receive for each individual model.
The Japanese subsidy agency, Next Generation Vehicle Promotion Center, has released an updated list of model-specific subsidy amounts for registrations starting from January 1, 2027. It compares the previous and new amounts. Therefore, for buyers, it is not only the respective subsidy ceiling that matters but also the specific grant for the chosen model and its registration date. Below is an example of the changes in subsidies for five popular models in Japan:
| BEV Model | Subsidy until End 2026 | Subsidy starting 2027 | Change |
| --- | --- | --- | --- |
| Toyota bZ4X | 1.30 million Yen (approx. 7,300 €) | 780,000 Yen (approx. 4,400 €) | −520,000 Yen (approx. 2,900 €) |
| Nissan Leaf | 1.29 million Yen (approx. 7,300 €) | 774,000 Yen (approx. 4,400 €) | −516,000 Yen (approx. 2,900 €) |
| Tesla Model Y | 1.27 million Yen (approx. 7,200 €) | 762,000 Yen (approx. 4,300 €) | −508,000 Yen (approx. 2,900 €) |
| Nissan Sakura (Kei-EV) | 580,000 Yen (approx. 3,300 €) | 458,000 Yen (approx. 2,600 €) | −122,000 Yen (approx. 700 €) |
| BYD Atto 3 / Dolphin | 150,000 Yen (approx. 800 €) | 90,000 Yen (approx. 500 €) | −60,000 Yen (approx. 300 €) |
In addition, Japan adjusts the subsidies for manufacturers’ environmental and climate protection measures. Factors considered include efforts to use steel with lower CO₂ emissions. The maximum subsidy for regular electric vehicles is reduced from 50,000 Yen (approx. 300 euros) to 30,000 Yen (approx. 200 euros). For Kei-EVs, it is lowered from 30,000 Yen (approx. 200 euros) to 18,000 Yen (approx. 100 euros).
Reduction due to high demand
The decision is based on the expectation that the funds for the current subsidy program will be exhausted before the originally scheduled end date for applications. The Japanese government aims to extend the lifespan of the remaining funds by using lower subsidy rates. This adjustment applies to the CEV subsidy program under the supplementary budget for Japan’s fiscal year 2025. It has not yet been decided whether or not Japan will introduce a new subsidy program and, if so, at what level.
The Japanese government allocated around 110 billion yen (approximately 624 million euros) for subsidies in the supplementary budget for 2025. After the program launched, demand exceeded expectations; under unchanged conditions, a funding shortfall could have arisen. The surge in demand was triggered by an increase in subsidy amounts in January 2026. The upper limit for conventional electric vehicles—including bonuses—was raised from a maximum of 900,000 yen (about 5,700 US dollars) in 2025 to up to 1.3 million yen (about 8,300 US dollars) in January 2026. According to “Biggo Finance,” this boosted sales: by September 2026, BEV sales in the domestic market stood at 16,074 units, an 88.6 percent increase from the previous year.