Otis Singleton
China has been offering incentives to electric vehicle (EV) manufacturers and customers for over a decade. These incentives have been credited with creating the world's largest and fastest-growing EV market. However, the Chinese government has been gradually reducing its support in recent years. Now, with the Chinese economy slowing and vehicle sales declining, the government is considering extending its EV incentives beyond 2022 to stimulate the market.
| Characteristics | Values |
|---|---|
| Incentives for manufacturers | Based on the number of EVs sold |
| Incentives for consumers | Based on mileage, i.e., battery capacity |
| Subsidy amount | Up to RMB 0.6 million (US$87,000) for a 6-meter-long battery electric bus |
| Subsidy providers | National government and local government |
| Subsidy reduction | 20% cuts from 2017 to 2018 and 40% cuts from 2019 to 2020 |
| Tax breaks | Exemption from a 5% purchase tax on EVs extended until Dec. 31, 2023 |
| Rural buyer incentives | Payouts of up to 5,000 yuan ($740) per vehicle |
| Local government incentives | Guangdong and Chongqing offered subsidies for exchanging old cars for EVs |
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What You'll Learn
China's EV subsidies
China has been offering subsidies for electric vehicles (EVs) to stimulate the market and address slow growth in the auto industry. These subsidies are intended to support the EV industry and expand this critical market. The Chinese government's incentives have played a crucial role in making China the largest EV market and manufacturer globally.
In the Chinese context, EVs encompass battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), extended-range electric vehicles, and fuel cell electric vehicles (FCVs). The incentives are structured to encourage the purchase of vehicles with longer driving ranges, such as those with a range of over 300 kilometres. For instance, a subsidy for a plug-in hybrid in this range was approximately $1,900.
The subsidies are also designed to incentivize manufacturers. For example, a 6-meter-long battery electric bus could receive up to RMB 0.6 million (US$87,000) in subsidies, with half coming from the national government and half from the local government. However, this structure has led to some fraudulent activity, with certain manufacturers obtaining subsidies without producing the required electric vehicles or installing essential components like batteries and motor controllers.
To address this issue, the Chinese government implemented a series of regulatory measures, including raising eligibility standards for manufacturers of new energy vehicles (NEVs). The government also adjusted the subsidy amounts over time, with plans to transition from direct financial aid to a market-based approach. Initially, the Chinese government planned to phase out NEV subsidies by 2020, but the COVID-19 pandemic caused a delay in this timeline.
In 2022, China announced a 30% cut in NEV subsidies, with a complete elimination of subsidies by the end of the year. This decision was expected to impact the EV market, especially with the concurrent challenges of rising costs and material scarcity. However, China has also extended tax breaks for electric car purchases, providing some relief to consumers.
As of June 2023, China is considering extending its EV subsidies further to continue stimulating the market and addressing slow growth in the auto industry. These extensions may include incentives for EV customers and additional support for the industry.
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Incentives for manufacturers
China offers a range of incentives to encourage the manufacture of electric vehicles (EVs). These incentives are designed to stimulate the EV market and address slow growth in the auto industry, which has been impacted by the COVID-19 pandemic and related restrictions.
One significant incentive is the offering of subsidies for EVs. These subsidies are provided by both the national government and local governments, and they are based on the number of EVs sold and their mileage. For example, a 6-meter-long battery electric bus may receive a subsidy of up to RMB 0.6 million (US$87,000), with half of the subsidy coming from the national government and the other half from the local government. This subsidy even surpasses the overall cost of a bus equipped with low-cost technology, providing a strong incentive for manufacturers.
However, there have been instances of fraud and deception to obtain these subsidies. Some manufacturers have obtained licenses by bribing or deceiving local registration authorities, and in some cases, subsidized vehicles existed only on paper and were not actually produced. As a result, the government has implemented regulatory measures to crack down on fraud and raise eligibility standards for manufacturers of new energy vehicles (NEVs).
In addition to subsidies, the Chinese government has also offered tax breaks for EV purchases. This includes an exemption from a 5% purchase tax on all pure-electric, plug-in hybrid, and fuel-cell cars, which has been extended multiple times, most recently until the end of 2023. These tax breaks have played a crucial role in making China the biggest EV market in the world.
China has also implemented standards and regulations to support the EV industry. For example, the country has established eligibility standards for manufacturers of NEVs, and it has invested in the development of charging infrastructure, with the number of charging units in the country doubling over the past year.
Overall, China's incentives for manufacturers of EVs include generous subsidies, tax breaks, and supportive standards and regulations. These incentives have been critical in the growth of China's EV market and have positioned the country as a global leader in EV adoption.
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Tax breaks for electric car purchases
China has been offering various incentives to encourage the use of electric vehicles (EVs) and support the industry. One of these incentives is tax breaks for electric car purchases.
In September 2022, China extended the tax breaks for electric car purchases until the end of 2023. This means that buyers of pure-electric, plug-in hybrid, and fuel-cell cars will be exempt from paying a 5% purchase tax. The extension was announced by the Ministry of Finance, State Taxation Administration, and Ministry of Industry and Information Technology in a joint statement. The tax exemption policy for electric vehicles was first introduced in 2014 and has been extended multiple times to spur demand and promote the use of electric cars.
The tax breaks for electric car purchases are part of China's broader incentive programs to support the EV industry and expand the market. Other incentives include direct subsidies to EV manufacturers and consumers. The subsidies are based on the number of EVs sold and their mileage, with vehicles having longer mileage and certain manufacturers being eligible for higher subsidies.
The incentives have been credited with making China the largest EV market in the world. However, there have also been challenges, such as fraudulent activities by some manufacturers and supply chain constraints. Despite these issues, China remains committed to supporting the EV industry and promoting the use of electric vehicles through tax breaks and other incentives.
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Stimulus measures for consumers
China has implemented various stimulus measures to encourage the adoption of electric vehicles (EVs) among consumers. These measures include:
Financial Incentives
The Chinese government has offered subsidies and tax breaks to make EVs more affordable for consumers. These subsidies are provided to manufacturers based on the number of EVs sold, with higher subsidies for vehicles with longer mileage. For example, a battery-electric bus could receive a substantial subsidy of up to RMB 0.6 million (US$87,000), half from the national government and half from the local government. Additionally, the government has extended the period of tax exemption for new energy vehicles, including fully electric and plug-in hybrid cars, until the end of 2023.
Rural Subsidies
The Chinese government introduced subsidies to encourage rural buyers to purchase EVs, with payouts of up to 5,000 yuan ($740) per vehicle. This initiative aims to stimulate EV sales in rural areas and promote wider adoption across the country.
Trade-In Incentives
Some local governments in China, including Guangdong and Chongqing, implemented stimulus measures to subsidize consumers who exchange their old combustion engine vehicles for new EVs. These trade-in incentives provide consumers with financial benefits when they switch to EVs, further reducing the cost of ownership.
Increasing Charging Infrastructure
China has significantly expanded its charging infrastructure, now boasting roughly four million charging units nationwide, double the number from the previous year. This expansion addresses the concerns of consumers regarding the availability of charging stations, making the transition to EVs more attractive and convenient.
Reducing Manufacturing Costs
Over time, the Chinese government has adjusted the amount of subsidies per vehicle as demand increased and manufacturing costs decreased. This strategy has made EVs more affordable for consumers, particularly for models with longer driving ranges, as the subsidies are now targeted at bigger models with a driving range of over 300 kilometres per charge.
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Impact of COVID-19 lockdowns
The COVID-19 pandemic has had a significant impact on the automotive industry worldwide, with major car manufacturers halting production lines for extended periods. However, China's auto industry has proven resilient, and the Chinese market is recovering faster than other markets. This recovery can be attributed to various factors, including the Chinese government's incentives and stimulus packages aimed at boosting the economy and supporting the automotive industry.
In the early stages of the pandemic, while other countries were entering lockdown, factories and assembly plants in China, including those in the Hubei district where Wuhan is located, resumed operations. This head start allowed China to get a jump on the competition and positioned it for a stronger recovery.
To mitigate the impact of COVID-19 on the electric vehicle (EV) industry, the Chinese government extended EV incentives by two years. These incentives included price subsidies for manufacturers of new energy vehicles (NEVs) and exemptions from the 10% purchase tax charged on gasoline cars. The government also provided incentives to eliminate diesel trucks with China III Emission Standards and below in key areas such as Beijing, Tianjin, and the Hebei region.
The Chinese government's efforts to promote the adoption of EVs and support the automotive industry during the pandemic have had notable results. In May 2020, auto sales in China rose 14.5% compared to the same month in 2019, marking the second consecutive month of increase. According to the China Association of Automobile Manufacturers (CAAM), 2.19 million vehicles were sold in the country in May 2020.
However, the pandemic's effects on the industry have been mixed. While sales figures have been impressive, COVID-19 lockdowns have disrupted production and deliveries. For example, a stringent lockdown in Shanghai in 2022 led to a slowdown in auto sales growth, with demand faltering due to the economic impact of the lockdown. Despite this, the Chinese government remains committed to incentivizing the EV market, and industry officials forecast a stronger end to the year.
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Frequently asked questions
Yes, China offers various incentives to encourage the purchase of electric vehicles (EVs). These include subsidies, tax breaks, and exemptions from purchase taxes.
The Chinese government provides subsidies to EV buyers, which are calculated based on the vehicle's mileage and battery capacity. The amount of the subsidy is higher for vehicles with longer mileage and larger battery sizes.
Local governments in China have implemented various measures to incentivize the purchase of EVs. For example, some local governments, like Guangdong and Chongqing, offered subsidies to consumers who exchanged their old combustion engine vehicles for new EVs. Additionally, the Shanghai municipal government has considered ways to boost spending on EVs, and the China Securities Journal reported that officials would introduce subsidies to encourage rural buyers to purchase EVs.
Yes, China has extended tax breaks for electric vehicle purchases. The Ministry of Finance, State Taxation Administration, and Ministry of Industry and Information Technology announced that buyers of pure-electric, plug-in hybrid, and fuel-cell cars would be exempt from paying a 5% purchase tax through 2023.
