The Chinese New Energy Vehicle (NEV) market, once a booming sector, is now experiencing a slowdown in growth, according to recent reports. Alarmed by this lack of progress, China’s State Council is contemplating extending the tax exemption for certain vehicles for another four years.
Since 2014, China has been granting NEVs an exemption from purchase tax, resulting in savings of approximately RMB 10,000 (€1,300) per vehicle. This measure was intended to stimulate the demand for electric and hybrid vehicles. Initially set to expire in 2020, the tax exemption was extended until the end of the following year.
In September of the previous year, the Chinese government decided to further prolong this policy, with 2023 originally planned as the final year for the incentive. However, in light of the latest sales figures, the government is reevaluating its position. The growth of the NEV industry has considerably slowed down, prompting a reconsideration of the extension to boost the market.
In 2022, China’s purchase tax exemption amounted to an astounding RMB 6.8 billion (€895,680,650) in uncollected tax revenue. Although this represents a substantial sum, the repercussions of sluggish sales could be severe, potentially leading to business closures, mounting debts, and tens of thousands of job losses.
Currently, the purchase tax exemption remains the sole available incentive in China. The previous purchase incentives, similar to the US EV tax credit, have not been renewed for this year. Consequently, new electric vehicles are considerably pricier than they were a year ago. Despite aggressive price cuts in the EV sector, the impact has not been as significant as anticipated.
It may be difficult to fathom that the Chinese EV market is indeed slowing down. From January to April this year, Chinese automakers sold 1.8 million NEVs, a 36% increase compared to the same period last year. However, the issue lies in the growth rate, as last year’s figures surpassed 2021 by a staggering 124%.
As the NEV market in China matures, it becomes saturated with nearly 100 vehicle brands, a majority of which now offer at least a few electric car models. The EV revolution is gradually becoming the norm, resulting in slower growth and eventually reaching a stable vehicle market. Paradoxically, this level of growth is insufficient to provide the necessary economic boost to China.
