China extends EV tax incentives through 2027 to boost lagging demand

Vyra Wu, DIGITIMES Asia, Taipei 0

Credit: AFP

In June 2023, the Chinese government introduced two notable policies targeting the EV sector. One policy involves EV tax breaks, while the other entails the expansion of the new energy vehicle (NEV) promotion initiative in rural areas. As observed by DIGITIMES Research analyst Jessie Lin, these policies yield several advantages, including a sustained boost in market demand, amplified investments by Chinese carmakers in the EV domain, and the advantageous preservation of China's prominent position within the EV industry.

EV sales & tax break amounts in China, 2014–2022

EV sales & tax break amounts in China, 2014 -2022

Source: Auto related associations, DIGITIMES Research, July 2023

China's EV tax reduction policy shows a positive correlation with the volume of EV sales. China's finance ministry forecasts that the tax credit between 2024 and 2027 will amount to CNY$520 billion (US$72.4 billion), contributing to the continued upswing in EV sales within the domestic market. Taking a broader economic perspective, considering that domestic car consumption represents roughly 10% of total consumer spending, the heightened EV sales volume also plays a role in propelling overall economic expansion.

The EV tax credit plays a role in minimizing the price disparity between electric and gasoline vehicles, thereby enhancing consumers' inclination to purchase an EV. From a corporate standpoint, the extension of the car purchase tax break until 2027 empowers Chinese automakers to set enduring strategic objectives and allocate greater resources towards the advancement of the EV sector.

The rural implementation of the NEV promotion policy marks its fourth iteration. This time, a total of 69 models have been unveiled. Building upon the efficacy of the preceding three enactments, the annual sales growth rate for NEV in rural areas has consistently outperformed the broader EV market in China. Carmakers have correspondingly reacted to the policy by introducing affordable autos, predominantly priced between CNY$29,000 and CNY$170,000. This move is anticipated to additionally narrow the penetration gap between EVs in rural and urban locales.

About the analyst

Jessie Lin received a master's degree from the Department of Business Administration at the National Taiwan University of Science and Technology. Her research focuses on automotive, LED, and display panels.