China unveils $72 billion tax break for electric vehicles and other green cars to boost demand

By Qiaoyi Li and Liz Lee

BEIJING/SHANGHAI (Reuters) – China on Wednesday unveiled a 520 billion yuan ($72.3 billion) package to boost sales of electric vehicles (EVs) and other green cars over the next four years to to support the slowdown in auto demand, sending automaker stocks sharply higher.

The package, widely expected after a previous government pledge to promote the industry, comes as slowing sales in the world’s biggest car market have raised concerns about economic growth losing momentum after a start to slowdown. quick year.

New energy vehicles (NEVs) purchased in 2024 and 2025 will be exempt from the purchase tax of up to 30,000 yuan per vehicle, with the exemption reduced by half for purchases made in 2026 and 2027, the ministry said. Finances in a press release.

The total tax relief will amount to 520 billion yuan, Vice Finance Minister Xu Hongcai said at a press conference.

The move is a continuation of the current policy under which NEVs – which include all-battery electric vehicles (EVs), plug-in gasoline-electric hybrids and hydrogen fuel cell vehicles – are exempt from purchase tax until the end of 2023.

“The extension for another four years has exceeded market expectations,” said Cui Dongshu, general secretary of the China Passenger Car Association, adding that the costly extension of the exemption suggests additional stimulus was unlikely. .

Chinese auto stocks rallied after the announcement, with electric vehicle makers NIO and Xpeng rising 6.1% and 5.5% respectively, against a 1.9% decline in the Hong Kong benchmark. . Li Auto also jumped 3.5%.

The announcement follows a June 2 Cabinet meeting where authorities said they would extend and optimize tax exemption and study policies to promote the development of NEVs.

The incentives put NEVs, a major spending pillar, at the forefront of a large-scale push to rekindle growth in the world’s second-largest economy.

The government has heavily promoted NEVs in recent years through incentives that have supported the rise of local players such as Li Auto, NIO and BYD.

BYD, backed by Warren Buffett’s investment firm Berkshire Hathaway, is now selling more Volkswagen-branded cars in China and became the country’s biggest automaker by sales this year.

Analysts said capping the purchase tax exemption would help spur the growth of cheaper models that are mostly produced by domestic companies rather than high-end vehicles from foreign manufacturers.

NEV sales took a hit earlier this year after the government ended a more than decade-long subsidy for electric vehicle purchases, but rebounded after automakers including Tesla slashed prices. prices to defend their market share and after the previous extension of the purchase tax exemption.

“This will help the growth of electric vehicles in China,” said Susan Zou, vice president of researcher Rystad Energy, predicting that electric vehicle sales will increase by 30% in 2024, compared to an estimated 15% this year.

NEV sales rose 10.5% in May from the previous month, according to data from the China Passenger Car Association. They jumped 60.9% from a year earlier, when COVID-19 curbs continued to disrupt auto production and sales.

Wednesday’s announcement is the fourth extension. The tax relief was announced in 2014 and extended in 2017, 2020 and 2022.

($1 = 7.1972 Chinese yuan renminbi)

(Reporting by Qiaoyi Li and Liz Lee; Additional reporting by Siyi Liu in Beijing and Donny Kwok in Hong Kong; Editing by Miyoung Kim and Christopher Cushing)

Leave a Comment