China unveils $72 billion tax break for green cars
China on Wednesday unveiled a package of tax breaks worth 520 billion yuan ($72.3 billion) over four years for electric vehicles (EVs) and other eco-friendly cars, the largest ever in the industry, as it seeks to boost slowing car sales growth.
Weaker sales in the world’s biggest auto market have fueled concerns about China’s economic growth, and while the industry was widely expected to receive financial support following an earlier government pledge, shares of major automakers rose after the details were released. “The four-year extension exceeded market expectations,” said Cui Dongshu, secretary general of the China Automobile Association.
New Energy Vehicles (NEVs) purchased in 2024 and 2025 will be exempt from the purchase tax of 30,000 yuan (US$4,170) per vehicle. vehicle. The exemption will be halved and capped at 15,000 yuan for purchases made in 2026 and 2027, the finance ministry said in a statement. China previously offered subsidies for the purchase of electric cars for more than a decade, but the program ended last year.
After the announcement, Chinese automotive shares rose, electric car manufacturer NIO also rose by 3.5%. The new package extends the current NEV purchase tax exemption, which expires at the end of 2023. NEVs include all-battery electric vehicles, plug-in gasoline-electric hybrids, and hydrogen fuel cell vehicles.
Cumulative NEV tax incentives, first introduced in 2014 and extended three times until 2022, exceeded 200 billion yuan last year, Vice Finance Minister Xi Hongkai said at a press conference. According to Xu, this year’s exemption would exceed 115 billion yuan, indicating that the new 520 billion yuan package is the biggest tax break ever for the industry.
The tax breaks will give NEVs a broad boost to boost growth in the world’s second-largest economy. The government has strongly supported NEVs in recent years with incentives that have supported the emergence of local players such as Li Auto, NIO and BYD.
BYD, backed by Warren Buffett’s investment firm Berkshire Hathaway, now outsells Volkswagen-branded cars in China, becoming the country’s largest automaker by sales this year. According to analysts, the upper limit of the purchase tax exemption would promote the growth of cheaper models produced mainly by domestic companies, rather than the growth of premium cars from foreign manufacturers.
Published in EDP BLOGS on June 22, 2023.
