Germany is trying to boost demand for electric vehicles on environmental grounds and in response to a diesel emissions cheating scandal that has engulfed the country's auto industry, notably Volkswagen but also others including Daimler, in the last three years.
The document, drawn up by the economy ministry, has been sent to other German ministries for approval.
Incentives worth 4,000 euros (£3,459) on the purchase of a new electric car in Germany were introduced in June 2016 and are due to end in June. The draft envisages an extension until Dec. 31, 2020 in largely its current form.
The government and carmakers shared the financing but the 1.2 billion euros earmarked have not yet been used. Some estimates show that less than 500 million euros have been taken up.
The subsidies have helped lift sales but even so, electric cars made up only about 1 percent of new car registrations last year, the KBA motor vehicle authority has said.
The economy ministry declined to comment and referred to previous statements that it would soon communicate details of the incentive programme's future.
(Reporting by Markus Wacket; Writing by Madeline Chambers; editing by John Stonestreet)