China to abolish tax exemptions for new energy vehicles…from 2027, same taxation as internal combustion institutional investor vehicles

*This content was translated by AI.

The Chinese government has decided to terminate the final tax exemption benefits for new energy vehicles (NEVs).For years, China built the world's largest electric vehicle market through state-backed financing and preferential tax policies. However, recent reductions in subsidies and strengthened protectionist tariffs by Western nations have left Chinese automakers facing a new policy environment.

Consequently, owners of high-efficiency fuel economy vehicles that previously enjoyed a 50% reduced tax rate, plug-in HYBE Lead (PHEV) models that were fully exempt, extended-range HYBE Lead (EREV) vehicles, and fuel cell commercial vehicles will now be subject to the same taxes as ordinary internal combustion institutional investor vehicles. However, battery electric passenger cars and fuel cell passenger cars are excluded from taxation due to having no engine displacement.

The background behind the Chinese government's decision to end long-standing green tax incentives is to prevent a growing fiscal deficit and strengthen income distribution adjustments. Authorities explained that since the average price of NEVs such as PHEVs has reached 218,000 yuan, they are primarily purchased by high-income earners, leaving no justification for maintaining tax exemptions.

Meanwhile, China's domestic new energy vehicle market is already experiencing a sharp contraction in consumer sentiment. Due to the impact of reduced purchase tax exemption benefits this year, cumulative sales of new energy vehicles in the first quarter fell 23.8% compared to the same period last year.

As the domestic market shrinks, Chinese automakers are focusing on overseas exports. In May, they surpassed Japanese automakers' market share in Europe for the first time. However, the European Commission has completed regulatory coordination to impose additional retaliatory tariffs on Chinese HYBE Lead models.

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*This content was translated by AI.