There are three key variables, by and large, influencing the sales of new energy vehicles (NEVs), namely the product, subsidy and oil prices, and the combination of which successfully boosted China's NEV sales in 2021 and 2022.
In order to sustain the momentum of China's NEV market, China has extended the tax break for NEV purchase until 2027. And these efforts are expected to allow further sales growth by 35%, 25% and 20% in the next three years respectively.
The Ministry of Finance of China issued the Announcement on Continuing and Optimizing the Vehicle Purchase Tax Break and Exemption Package for New Energy Vehicles on June 19, according to which NEVs, mainly battery EVs (BEVs), plug-in hybrid EVs (PHEVs) and fuel battery EVs that meet certain technique requirements and are purchased in 2024 and 2025, will be equally exempted from purchase tax of up to Yuan 30,000 per vehicle, while those purchased over 2026 and 2027 could enjoy a tax reduction of no more than Yuan 15,000.
It is worth mentioning that this time, China has specially unified the tax subsidy for different types of NEVs, which enjoyed different levels of preferences in the previous package. The unification is projected to further promote the penetration rate of PHEVs, while integrating the NEV market to confront the traditional fuel vehicle market.
More importantly, all NEVs, such as those priced over Yuan 400,000, are eligible for the no-more-than-Yuan-30,000 tax exemption, as long as the parts that exceed the tax exemption amount are properly covered. In other words, domestic NEV brands, like NIO, LiAuto and ZEEKR, are encouraged to develop more high-end models to create more values.
China's extending the tax break is also considered a response to the international practices, and more are expected after the current package expires in 2027.
The US NEV market is in the early stage of an outbreak, and the Inflation Reduction Act (IRA) bill has been a strong driver, based on which the tax credit for EVs will last until 2032. However, the requirement for the proportion of key minerals, one of the conditions for tax credit, is until 2027. In the next two years, the fastest growing sales of NEVs will be observed in the US, while China and Europe will still secure the largest sales volume. It is estimated that the US NEV sales growth will reach 78% in 2023, 57% in 2024, and 43% in 2025.
In the European market, Norway's preferential policies for BEVs will continue until 2025; Germany and the Netherlands will continue to provide subsidies for BEVs until 2025; and Italy's subsidies for NEVs are also increasing year by year, but the penetration rate has been disappointing. Nevertheless, if Tesla builds a factory in Italy in the future, it will have a great impact on the penetration rate of the country. It is palpable that the European market is positively promoting the development of NEVs.
Generally speaking, China's new tax break package is expected to substantially and effectively stimulate the sales of NEVs.
Written by Aggie Hu, huchenying@mysteel.com
