Caixin
Apr 01, 2020 03:43 AM
BUSINESS & TECH

China Extends Electric Vehicle Incentives by Two Years

A BYD E6 electric taxi is charged at the company's charging station in Shenzhen. Photo: Bloomberg
A BYD E6 electric taxi is charged at the company's charging station in Shenzhen. Photo: Bloomberg
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China will extend subsidies and tax breaks for new-energy vehicle purchases by two years to bolster the world’s largest electric car market amid the double whammy of a prolonged auto sales slump and fallout from the Covid-19 pandemic.

The State Council, China’s cabinet, announced the two-year extension Tuesday, providing price subsidies to makers of new-energy vehicles (NEVs) and waiving car-purchase taxes for consumers until the end of 2022.

NEV producers can get government subsidies of as much as 25,000 yuan ($3,500) per vehicle. Buyers are exempt from the 10% purchase tax levied on gasoline cars. Both policies were to expire at the end of this year.

China introduced incentives including preferential taxes and subsidies for NEVs a decade ago, spurring explosive growth in the market. But the government support has long been criticized for undermining market rules and encouraging dodgy practices such as subsidy fraud.

Since 2017, policymakers have been trimming NEV subsidies in hopes of putting the industry on a sustainable track and making it less reliant on state support. Government subsidies have since phased out step-by-step and were scheduled to be largely removed this year.

The withdrawal of state support along with the overall contraction of China’s auto market sent a chill through the NEV market, affecting leading electric car makers including Beijing Electric Vehicle Co. Ltd, a unit of BAIC Group, and Warren Buffet-backed BYD Co.

BYD sold 229,500 NEVs last year, down 7.4% from 2018. The company reported Tuesday its first annual revenue drop of 1.78% in 2019 with net profit down more than 42% to 1.6 billion yuan. BYD attributed the weaker earnings to changes in the market and policies as well as rising research spending.

Overall NEV sales — which include battery electric, fuel cell, and plug-in hybrid vehicles — dropped 4% year-on-year in 2019 to 1.2 million units, the first annual decline ever.

The decline sparked speculation that authorities might slow the phase-out of NEV subsidies. In January, Minister of Industry and Information Technology Miao Wei said government subsidies would “remain relatively steady” this year to stabilize market expectations and ensure the healthy development of the industry.

The Covid-19 outbreak that froze business and forced city lockdowns also hit China’s auto market badly. In February, overall car sales plunged 80%.

Cui Dongshu, secretary general of the China Passenger Car Association, said the cabinet’s decision to extend the subsidies will play a big role in stabilizing the NEV market. Otherwise, China’s NEV market would be likely to slide into contraction, Cui said.

Data from the Ministry of Industry and Information Technology (MIIT) showed that about 97% of China’s auto manufacturing capacity has resumed operation after months of shutdown during the outbreak. However, the market faces challenges of weakening demand as consumers are more hesitant to spend, said Xin Guobin, deputy minister of the MIIT.

Xin said the ministry is working with other government departments on policies to revive auto consumption. A number of local governments have rolled out measures to boost car sales, Xin said.

The cabinet Tuesday also slashed taxes on used car transactions to encourage the development of the pre-owned car trading market.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)


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