China presented its largest-ever package of tax cuts for electric vehicles (EVs) and other green automobiles on Wednesday, totaling 520 billion yuan ($72.3 billion) over four years. The move comes as China attempts to speed up the country’s sluggish growth in auto sales.
Despite financial help being widely anticipated following a previous government vow to promote the industry, shares of major automakers shot up when the specifics were revealed, raising concerns about China’s economic growth. Weakening sales growth in the world’s largest auto market has also caused alarm.
According to Cui Dongshu, secretary general of the China Passenger Car Association, “the extension by another four years exceeded market expectations.”
NEVs acquired in 2024 and 2025 will not be subject to purchase taxes that might total 30,000 yuan ($4,170) per vehicle. For purchases made in 2026 and 2027, the exemption will be cut in half and capped at 15,000 yuan, according to a statement from the Ministry of Finance.
For more than ten years, China also provided a subsidy for EV purchases; however, the scheme was discontinued last year.
Following the announcement, Chinese car shares rose, while EV manufacturer NIO also saw a 3.5% increment.
The present NEV purchase tax exemption, which expires at the end of 2023, is extended by the new package. All-battery EVs, plug-in hybrids of gasoline and electricity, and hydrogen fuel-cell vehicles are examples of NEVs.
According to Vice Minister of Finance Xu Hongcai, at a press conference, cumulative NEV tax cuts, which were first introduced in 2014 and tripled most recently in 2022, exceeded 200 billion yuan as of last year.
The new package of 520 billion yuan would be the largest amount of tax incentives for the industry ever, according to Xu, who predicted that this year’s exemption would surpass 115 billion yuan.
NEVs are now at the forefront of a wide initiative to revive growth in the second-largest economy in the world thanks to the tax advantages.
Incentives provided by the government in recent years have helped local players like Li Auto, NIO, and BYD grow their businesses.
BYD, supported by Warren Buffett’s investment firm Berkshire Hathaway, has surpassed Volkswagen’s sales in China and has emerged as the largest automaker there this year based on sales.
Analysts predicted that the cap on the purchase tax exemption will encourage the rise of less expensive models made mostly by domestic companies rather than high-end automobiles from foreign manufacturers.
After the government discontinued the EV purchase subsidy program earlier this year, NEV sales took a knock. However, they recovered after automakers, particularly Tesla, cut prices to protect market share and following the previous renewal of the purchase tax exemption.
According to Susan Zou, vice president at research firm Rystad Energy, EV sales in China are expected to increase by 30% in 2024, up from the 15% rise predicted for this year.
According to figures from the China Passenger Car Association, NEV sales increased 10.5% in May compared to the previous month. They increased by 60.9% from a year ago when COVID-19 limits were still disrupting auto sales and production.
Numerous local governments also unveiled new stimulus plans, increasing the various incentives they had already started using this year to boost sales.
In order to encourage the purchase of NEVs, the local government of Zhengzhou, the provincial capital of central Henan, said on Wednesday that it will be issuing automobile purchase coupons worth 50 million yuan between June and August.
