China extends EV tax exemptions totaling $72 billion through 2027, the largest tax break to date

China’s Ministry of Finance has confirmed that tax exemptions for New Energy Vehicles (NEVs) scheduled to expire at the end of this year have been extended through 2027. Consumers in China will now be able to take advantage of EV tax breaks amounting to over $4,000 per vehicle to start, which will dwindle down over the next four years.

China has used cumulative tax breaks to encourage EV adoption for over a decade now and has found great success. The country remains one of the fast growing EV markets and as of 2022, one in four vehicles sold was electrified.

These enticing tax exemptions have helped boost sales of local automakers in China such as BYD, NIO, and XPeng – helping further fund their research and develop to introduce new EV technologies and expand to new markets around the globe.

In fact, China’s EV tax options have been so successful, they’ve already seen a set expiry after three consecutive renewals between 2014 and 2022. The Chinese government previously offered a significant subsidy for NEV purchases, but that expired last year. This led EV automakers like Tesla to slash prices in China to maintain its market share.

Since then, sales in China have begun to slow, especially for local marques. However, the markets rallied behind today’s EV tax announcement as a push to revitalize growth in the industry and local economy.

China EV tax exemption extended another four years

According to a statement from China’s Ministry of Finance today, NEVs purchased in 2024 and 2025 will be exempt from purchase tax up to 30,000 yuan ($4,175) per vehicle. For the two years thereafter, the tax break will be halved to 15,000 yuan ($2,085) per vehicle.

To qualify as a New Energy Vehicle (NEV) in China, the purchase must be a battery electric vehicle (BEV), plug-in hybrid (PHEV), or hydrogen fuel cell vehicle. Today’s news is being celebrated by consumers as market analysts as it is sure to help spark economic growth in China.

The news may come as less of a surprise to some as the Chinese government pledged to help bolster local EV purchases earlier this month. At the end of 2022, cumulative EV tax breaks totaled 200 billion yuan ($27.9B) and according to China’s vice minister of finance Xu Hongcai, the 2023 EV tax exemption set to expire should eclipse 115 billion yuan ($16B).

Today’s announcement of a new 520 billion yuan package could end up being the largest tax break to date for the automotive industry. This is larger than the United States investment in federal EV tax credits, but still significantly smaller than the Biden administration’s Inflation Reduction Act as a whole.

Analysts expect the tax exemptions to help boost EV growth in China 15% in 2023 and potentially as much as 30% in 2024. This will be a market to keep an eye on.