China has decided to extend a sop for the electric vehicle industry that was originally set to expire by the end of the year.
What Happened: China announced on Wednesday the details of a policy that would extend the purchase tax exemption for new energy vehicles (NEVs), which includes pure electric energy vehicles, fuel-cell vehicles, and plug-in hybrids.
According to CnEVPost, citing a Ministry of Finance release, the purchase tax exemption on NEVs will be applicable for vehicles purchased between Jan. 1, 2024, and Dec. 31, 2025. However, the tax exemption will not exceed 30,000 yuan ($4,169) per vehicle.
For NEVs purchased between Jan. 1, 2026, and Dec. 31, 2027, the vehicle purchase tax will be levied at half the normal rate, with an upper ceiling of 15,000 yuan per vehicle.
The original tax exemption, first implemented in 2014 to incentivize sales, was set to expire by the end of 2017. Through multiple extensions, it was scheduled to continue until the end of 2023.
China imposes a standard purchase tax rate of 10% on vehicles.
According to a report, Xu Hongcai, Vice Minister of Finance, stated at a press conference that the vehicle purchase tax exemptions will total 520 billion yuan from 2024-27.
Why It’s Important: The extension of the purchase tax exemption comes at a time when the economy is experiencing a soft patch, even after the reopening following prolonged COVID-19 lockdowns.
The NEV industry, in particular, faces intense competition due to the entry of numerous players. Major companies such as Tesla, Inc. TSLA and BYD Company Limited BYDDY have reduced prices to focus on volume and market share.
Domestic startup Nio, Inc. NIO, which initially held off on price cuts, was forced to adopt the strategy as its sales declined.
According to analysts cited by Reuters, cheaper models from domestic companies are expected to benefit more from the cap on the purchase tax exemption compared to premium vehicles from foreign companies.
Additionally, companies with battery-swapping capabilities are likely to benefit more, as the invoice for the car can be separated from the invoice for the batteries.
Hong Kong-listed shares of Nio traded up about 4% in late-afternoon trading.
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