Summary of Key Points
The "era of policy benefits" for new energy vehicles (NEVs) is coming to an end: a series of tax exemptions and subsidies are being gradually phased out, such as the introduction of a consumption tax on lithium batteries, the removal of vehicle and vessel taxes, and the reduction of purchase taxes. At the same time, regulatory measures have been tightened. The reason behind this is that the industry has matured faster than expected (with a penetration rate of 60%, achieving the target 9 years ahead of schedule). Excessive subsidies have led to inefficiency and competition, and the unfair situation where only gasoline vehicles bear the cost of road maintenance has become increasingly prominent. In the future, the industry will enter a stage of fair competition where both gasoline and electric vehicles have equal opportunities. Inefficient capacities will be eliminated, marking the beginning of a major reshuffle.
1. New Energy Vehicles Must Pay Taxes: Tax Exemptions Are Disappearing
Previously, NEVs and lithium batteries were exempt from consumption taxes and vehicle and vessel taxes, which was essentially equivalent to receiving "policy bonuses." These benefits are now being withdrawn:
- Lithium Battery Consumption Tax: Starting in September this year, a 2% tax will be levied, and it will increase to 4% next year (the same as for gasoline).
- Vehicle and Vessel Tax Exemptions: The policy, which has been in place for 15 years, is being phased out. Energy-efficient vehicles and electric vehicles used for delivery are exempt for now, but this exemption may not be extended.
- Purchase Tax: Initially reduced to half (5%) at the beginning of this year, it will return to the normal rate of 10% in 2028.
These taxes will eventually be reflected in the vehicle prices, meaning consumers will have to pay more. The advantage of NEVs being cheaper than gasoline vehicles will gradually diminish.
2. Why Stop the Subsidies? The Industry Is Too Mature
NEVs were once a priority for national support as an "immature industry" aimed at helping China's automotive sector "overtake" by moving away from relying on gasoline engines. However, the industry has matured faster than expected:
- Surging Penetration Rate: In the first half of this year, 6 out of every 10 vehicles sold were NEVs, compared to a target of only 20% set for 2025, which was achieved 9 years ahead of schedule.
- Subsidies Leading to Inefficiency: Past subsidies encouraged many companies to enter the market regardless of efficiency. As a result, China now has the highest production volume globally, but few are making profits due to fierce price competition. Increased production does not lead to higher revenues.
Continuing with subsidies would only support inefficient capacities, so it is necessary to let the market sort out the best companies on its own.
3. It's Unfair for Gasoline Vehicles to Bear All Road Maintenance Costs
You may not be aware that nearly 40% of the cost of gasoline includes taxes (such as fuel taxes), which are used for road maintenance. Since electric vehicles do not require refueling, they do not contribute to this expense. However, electric vehicles tend to be heavier due to their batteries, causing more damage to roads. Experts estimate that a 20% increase in vehicle weight can double the rate of road degradation.
The annual gap in road maintenance funding exceeds 600 billion yuan, and with the growing number of electric vehicles, gasoline vehicles cannot continue to bear all the costs alone. In the future, electric vehicles may have to pay a "mileage tax" or a "weight-based fee," or there might be an increase in the cost of charging infrastructure.
4. A Major Reshuffle Is Ahead: Only the Strongest Companies Will Survive
Companies that relied on policy subsidies will no longer have that protection and must rely on their own capabilities:
- Elimination of Inefficient Capacities: Those with poor technology, high costs, and a focus on price competition will be eliminated.
- Focus on Technology and Quality: Consumers will place more emphasis on range and reliability when purchasing NEVs. For example, the required testing distance for electric vehicles has been increased from 15,000 kilometers to 30,000 kilometers, matching the standards for gasoline vehicles.
- Return to Rational Profitability: Without subsidies, companies will need to improve efficiency and product quality to compete effectively.
In short, only the truly competitive companies will survive after the policy support fades. The industry will become healthier, but smaller and less capable firms will face challenges.
5. What Other Policies Could Follow?
This is just the beginning; more changes are likely to occur in the future, such as taxing based on mileage (similar to how gasoline vehicles are taxed on fuel consumption), charging infrastructure fees based on vehicle weight, or adjusting charging prices to cover maintenance costs. The goal is to ensure that both electric and gasoline vehicles share the same responsibilities and benefits.
In conclusion, the "good times" for NEVs are coming to an end, and a more competitive market landscape is about to emerge. For consumers, this may mean higher initial purchase prices, but in the long run, they will have access to more reliable vehicles. For the industry, it represents a chance to eliminate weak players and promote genuine innovation.
The essence of this news is that the government is shifting from providing support to allowing the market to drive the development of the NEV sector, ensuring only the most competitive companies survive.