China’s government on Wednesday announced a detailed plan to provide a full exemption of electric vehicles from purchase taxes in the next two years, an exemption that will be gradually rescinded from 2026. Beijing is also planning a pilot scheme to regulate passenger cars with partially and highly autonomous functions for potential large-scale operation, according to a deputy minister.
Why it matters: Industry players have responded positively to Beijing’s recent efforts to stabilize the EV market, where competition has heated up significantly in recent months.
- The extension of the EV purchase tax credit is “a big positive” from the market perspective, since automakers will be able to plan for new models and cost control going forward following Beijing’s early disclosure, BYD said on Wednesday (our translation).
- The government also underscored its strong support for EVs with swappable batteries, as battery prices will not be included in the dutiable value if a customer purchases an EV with a battery lease scheme, Nio’s chief executive William Li said on microblogging platform Weibo.
Analysts’ take: Bernstein analysts have voiced cautious optimism about the prospects for the world’s biggest EV market, as consumer confidence and credit impulses could be supportive of auto demand in the next few months after a slow recovery in car sales early this year.
- The long-term growth outlook for EVs “remains intact” as demand has shifted from government policy-led to consumer-driven, although EV sales growth is set to decelerate amid growing competition and overcapacity issues, Bernstein analysts wrote in a June 21 note.
- Jefferies analysts also hailed Beijing’s longer-than-expected tax credit as a positive sign, on Thursday forecasting China’s new energy vehicle sales, including all-electrics and plug-in hybrids, will reach 830 million units this year, up 27% from the 654 million units sold last year.
Details: EV buyers will be entitled to a 10% purchase tax exemption, or a credit of up to RMB 30,000 ($4,178) until the end of 2025. From 2026 to 2027, they will be taxed by 5% of the purchase price of their EVs, and the reduction amount will not exceed RMB 15,000 per vehicle, according to a government filing published Wednesday.
- The move is intended to maintain Beijing’s efforts to sustain the development of the EV industry and underpin China’s advantage in green car technologies, Xu Hongcai, deputy minister of finance said during a media briefing on Wednesday in Beijing.
- The Chinese authorities have put a limit on the amount of EV tax relief in an aim to ensure fair play and avoid luxury EVs, with some priced as high as RMB 1 million, taking extra resources, Xu said. He estimated total tax breaks to reach RMB 520 billion by 2027, up from RMB 200 billion as of last year.
L3 deployment: Meanwhile, the central government is planning a pilot scheme to officially lift the barriers to entry of passenger cars with semi-autonomous functions, or with the so-called Level 3 automation, said Xin Guobin, deputy minister of industry and information technology.
- Regional government authorities will also issue more permits for the commercial adoption of highly autonomous cars to operate in pilot projects, according to Xu, an endeavor that has been undertaken by a number of Chinese tech companies such as Baidu.
- Automakers are currently not allowed to market cars with L3 capabilities by Chinese regulators. In Level 3, or the partial autonomous level, the driver is required to take over the vehicle in emergencies, according to the definitions set by the Society of Automotive Engineers (SAE).