China Scraps 10% Purchase Tax on Electric Cars to Fight Smog

Jul 10, 2014 1:39 am ET

(Updates with comment from minister in ninth paragraph.)

July 10 (Bloomberg) -- China will waive a 10 percent purchase tax on electric cars as part of expanded measures to combat pollution and cut energy dependence.

New-energy autos -- China’s term for electric cars, plug-in hybrids and fuel-cell vehicles -- will be excluded from the levy from Sept. 1 to the end of 2017, according to a statement posted on the central government’s website yesterday, citing a State Council meeting led by Premier Li Keqiang. Electric carmaker BYD Co. climbed as much as 4.5 percent in Hong Kong trading.

The tax break is China’s latest attempt to spur demand for electric vehicles, whose sales have lagged behind a government target, as state subsidies failed to overcome consumer concerns over price, convenience and reliability. China has identified EVs as a strategic industry that can help it gain global leadership, reduce energy dependence and cut emissions that have contributed to worsening air pollution.

“The exemption will help spur demand for electric cars and plug-in hybrids by lowering the purchase cost,” said Han Weiqi, a Shanghai-based analyst at CSC International Holdings Ltd. “Still, it remains to be seen whether the latest measure will have a decisive impact given other types of funding have been in place.”

Tesla, BMW

The tax break also applies to qualified imported EVs, according to the government statement, paving the way for foreign carmakers such as Tesla Motors Inc., Bayerische Motoren Werke AG and Volkswagen AG to benefit from the waiver.

Tesla began deliveries of its imported Model S sedans in China this year. BMW will start sales of its i8 plug-in hybrid and i3 electric car in September, while VW plans to offer its up! electric car in China by the end of this year.

Supporting a strategic and emerging industry like new- energy vehicles is a “win-win” for industrial development and environmental protection, the central government said in the statement. Developing new-energy autos is important for spurring innovation, promoting energy savings and reductions in emissions, and will help to drive domestic demand and nurture new avenues of growth, the notice said.

The central and local governments have funded purchases of new-energy vehicles since 2010, offering subsidies reaching as much as 114,000 yuan ($18,400) off the price of an EV in Beijing. Even so, fewer than 70,000 of these autos are on China’s roads five years after the program began, trailing the government target for 500,000 vehicles by next year, according to comments from Vice Premier Ma Kai posted on Chinaev.org website in April.

Preferential Policies

“The State Council is putting electric vehicles high on its agenda because they not only save energy but also avoid atmospheric pollution,” Wan Gang, China’s Science and Technology Minister, said today in Beijing. “Senior officials from the State Council are working on that and I believe very soon there will be more preferential policies for electric vehicles coming out.”

More government support is needed to develop the infrastructure required to promote EV usage, such as building more charging stations that are conveniently located, he said.

The Chinese state-run research center in charge of helping the government draft automotive policy said last month that it recommended that electric-vehicle manufacturing be opened to companies other than carmakers.

The China Automotive Technology and Research Center has drafted the policy changes and proposed the issuance of two to three special licenses for EV manufacturing, Wang Cheng, who oversees the project at the center, said in an interview in June. The recommendations will be circulated among industry regulators for discussion before submission to the State Council, with approval expected as soon as this year, he said.

--With assistance from Sarah Chen and Henry Sanderson in Beijing.