Tesla Model S. Image source: Tesla.

The German automakers have long brushed aside the threat posed by Tesla Motors (NASDAQ: TSLA).

As recently as last November, former Daimler Chairman Edzard Reuter said that the Silicon Valley upstart "can't be taken seriously compared to the great car companies of Germany," according to the Los Angeles Times. Yet, at Daimler's annual shareholder meeting just this month, investors grilled management on its lack of a meaningful response to Tesla, since Tesla is now very successfully poaching many of the luxury buyers in a number of markets that German brands have long appealed to.

"We don't really have a product for this competition from Tesla," complained one shareholder. Another questioned why no German automaker had an adequate rival to the forthcoming Model 3. Daimler CEO Dieter Zetsche reassured investors that the company is at the leading edge of new technologies.

Well, the Germans just got an upper hand in their home turf.

A helping hand
After some speculation, the German government has now reached an agreement with German automakers to help subsidize battery electric vehicles (BEVs) and plug-in hybrids (PHEVs). BEVs will qualify for a 4,000 euro rebate, while PHEVs will get a somewhat smaller 3,000 euro rebate. The 1 billion euro plan will also include 300 million euros to help fund expansion of charging infrastructure.

Volkswagen, BMW, and Daimler will cover half of the subsidies while simultaneously increasing their R&D investments in battery and electrification technologies. The goal is to help add 400,000 EVs to the roads.

There was considerable opposition to the proposed government subsidies from German Finance Minister Wolfgang Schauble, who backed conservative free market principles and was initially averse to using taxpayer funds for EV incentives. But automakers lobbied for government assistance, and Tesla's strong Model 3 showing provided additional evidence that the companies, who are a strong source of national pride, needed to take action sooner rather than later.

Seat's taken
Here's the rub: Only cars that cost less than 60,000 euros are eligible for the incentive. That means that Tesla's Model S, which starts at 82,700 euros after a recent price bump, is not eligible. European deliveries of Model X are only now beginning, and Tesla has not yet opened up the Model X design studio in Germany. In comparison, BMW's all-electric i3 starts at 34,950 euros in Germany.

BMW i3. Image source: BMW.

However, it's worth noting that Germany has never been a strong market for Tesla, in part because German consumers highly prefer domestic brands. For the first eight months of 2015, Tesla sold less than 1,000 Model S vehicles in Germany, according to Bloomberg. That's a small fraction of the 7,100 estimated vehicles that Tesla delivered in Europe in the first half of 2015.

At least until Tesla rolls out its Model 3 in Germany, which should qualify for the incentive if it's still in place by the time European deliveries begin, German automakers will enjoy a home field advantage.