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China's NEV subsidy sends ICE industry into overdrive

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2023-06-21

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As suspected, China has extended the purchase tax subsidy (for varying amounts) for new energy vehicles (battery and plug-ins) for four more years.

The tax break will not start until January 1 next year, and there will be maximum amount limits for the first two years and a lower limit for the following two years.

The move was announced in Beijing on Wednesday, in a move that will boost sales of NEVs and drive up prices of lithium and other key renewable metals, such as copper, graphite, manganese, and nickel. China will exempt NEVs with a purchase date between January 1, 2024, and December 31, 2025, from the vehicle purchase tax.

However, the tax exemption will not exceed 30,000 yuan for each new energy passenger vehicle, according to an announcement issued today by China's Ministry of Finance.

For NEVs with a purchase date between January 1, 2026, and December 31, 2027, the vehicle purchase tax will be reduced by half, with the tax reduction not exceeding RMB 15,000 per new energy passenger vehicle.

The announcement made clear that the subsidies would be directed at passenger vehicles by limiting them to NEVs, such as pure electric vehicles, fuel cell vehicles, and plug-in hybrid vehicles that include extended-range electric vehicles.

A translation of the announcement said new energy passenger vehicles are designed, manufactured, and technically characterised primarily for the transport of passengers and their accompanied luggage, and up to nine seats including the driver's seat (so a large SUV-style vehicle or small van).

In China, the standard vehicle purchase tax is 10%, which is what owners of conventional internal combustion engine (ICE) vehicles currently pay. China had halved that tax on mainstream ICE vehicles to 5% from June to December last year, to boost sales in the harsh Covid lockdown. The 50% cut was not renewed after it expired at the end of last year, so with the extension of the NEV subsidy, it is clear the government is prioritising NEVs over ICE vehicles. For NEVs that do not support battery swap, they will not be able to reduce the taxable amount by selling the battery separately.

That means there is a growing danger of tens of billions of dollars' worth of ICE manufacturing plants, parts, servicing, and other facilities gradually becoming worthless over the next decade and having to be scrapped.

The CNEV website said, "It is worth noting that the latest policy released today continues to provide additional support for models that support battery swap," which means the government wants to facilitate the rapid uptake of NEVs and make their operation as easy as possible.

China already has a reported 70% of global charging points.

Copyright 2023 - Finance News Network


Source: Finance News Network

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