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China is introducing a package of tax breaks for electric cars worth over $70 billion

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China on Wednesday unveiled a 520 billion yuan ($72.3 billion) tax relief package aimed at boosting sales of electric vehicles and other green cars over the next four years to support faltering demand for cars. This caused a surge in automaker stocks.

The package, widely anticipated after an earlier government pledge to promote the industry, comes as faltering sales in the world’s largest auto market raised concerns about economic growth losing momentum after a brisk start to the year.

Cars classified as new energy vehicles (NEV) purchased in 2024 and 2025 will be exempt from purchase tax in the amount of up to 30,000 yuan per vehicle (approx. PLN 16.5 thousand). Relief will be cut in half for purchases made in 2026 and 2027, China said Ministry of Finance in a statement.

The NEV category includes battery-only electric vehicles (EVs), plug-in gasoline-electric hybrids and hydrogen fuel cell vehicles.

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– Total value tax credits will be 520 billion yuan, Vice Finance Minister Xu Hongcai told a news conference.

Chinese automakers gain in the stock market

The move is an extension of the current policy under which NEVs are exempt from purchase tax until the end of 2023.

“An extension of four years exceeded market expectations,” Cui Dongshu, general secretary of the China Automobile Association, told Reuters, adding that such a large package suggested additional stimulus measures were unlikely.

Gearbox in an electric car (illustration photo)shutterstock

Chinese auto stocks rose after the relief was announced, with electric car makers NIO and Xpeng rising 6.1% and 6.1% respectively. and 5.5 percent, compared with 2.4 percent. the decline of the Hong Kong benchmark index. Li Auto’s valuation also rose 3.5 percent.

The announcement followed a Cabinet meeting on June 2, where authorities said they would expand and optimize tax exemptions and study policies to promote NEV development.

China has been supporting the sale of electric cars for a decade

In recent years, the government has heavily promoted NEVs to reduce air pollution through incentives that have supported the growth of local players such as Li Auto, NIO and BYD.

NEV sales fell earlier this year after the government ended more than a decade of subsidies for electric vehicle purchases. It soon rebounded after automakers including Tesla cut prices to defend market share and after a previous purchase tax exemption extension.

The tax credit for the purchase of NEV cars was announced in 2014 and then extended in 2017, 2020 and 2022.

In the opinion of Susan Zou, vice president of research company Rystard Energy, the fourth extension of the relief “will help the development of electric vehicles in ChinaIt predicts that sales of this type of car will increase by 30% in 2024.

NEV sales rose 10.5 percent in May, according to Reuters, based on data from the China Passenger Car Association. compared to April. Compared to 2022, when COVID-19 restrictions continued to hamper the production and sale of cars, sales increased by 60.9%.

Main photo source: Shutterstock

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