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China Announces A $72 Billion Tax Discount For Evs And Other Green Vehicles To Increase Demand

China Announces A $72 Billion Tax Discount For Evs And Other Green Vehicles To Increase Demand
In an effort to speed up its sluggish auto sales growth, China proposed on Wednesday a 520 billion yuan ($72.3 billion) package of tax incentives over four years for electric vehicles (EVs) and other green cars.
While financial help was widely anticipated following an earlier government vow to promote the industry, shares of major automakers soared once the details were published. Weakening sales growth in the world's largest auto market has sparked anxiety over China's economic growth.
"The extension by another four years beat market expectations," said Cui Dongshu, secretary general of the China Passenger Car Association.
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 policy was discontinued last year.
Following the announcement, Chinese car shares rose, while EV manufacturers NIO also saw a 3.5% increase.
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 petrol and electricity, and hydrogen fuel-cell vehicles are examples of NEVs.
Cumulative NEV tax breaks, which were first introduced in 2014 and extended three times as recently as in 2022, exceeded 200 billion yuan as of last year, Vice Minister of Finance Xu Hongcai said at a press conference.
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.
Government incentives that backed the growth of regional players like Li Auto, NIO, and BYD strongly promoted NEVs in recent years.
BYD, which is supported by Warren Buffett's investment firm Berkshire Hathaway, has surpassed Volkswagen in sales in China and has overtaken it as the largest automaker there this year.
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 programme earlier this year, NEV sales took a knock. However, they recovered after automakers, particularly Tesla, cut prices to protect market share and following the prior renewal of the purchase tax exemption.
"This will aid China's EV growth," said Susan Zou, vice president at researcher Rystad Energy, anticipating EVs sales would grow 30% in 2024, accelerating from 15% estimated 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.

Christopher J. Mitchell

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