Experts: Tax cuts expected to soften blow of next year's subsidy cessation

China's latest package of favorable moves for new energy vehicles, including exempting NEV purchase taxes for another year, is expected to further ensure the sector's smooth and healthy development, analysts said.

The tax-exemption policy, which was scheduled to expire by the end of this year, has been extended by one year to 2023, said the State Council－the nation's Cabinet－on Friday.

The policy was initiated in 2014 to foster NEV sales, and this is the third time it has been extended.

The tax stands at 10 percent of a vehicle's sticker price, and it is estimated that its continued suspension will create tax cuts worth 100 billion yuan ($14.6 billion), said Kaiyuan Securities.

Local governments will also be required to issue extra license plates for NEVs, and such vehicles will continue to be exempt from ban-days in big cities, the State Council said.

Deng Jianquan, a Kaiyuan analyst, said the moves will serve as a buffer to prevent fluctuations in the NEV market in 2023, which might otherwise experience turbulence as the government's subsidies will be completely withdrawn by the end of this year.

China started to subsidize its NEV sector in 2009. Thanks in part to financial stimulus, the country became the largest market for NEVs in 2015 and has since held that title for seven years in a row.

A growing number of models and improved charging infrastructure have made NEVs a serious choice for car buyers and a highlight of China's auto market.

Cui Dongshu, secretary-general of the China Passenger Car Association, estimates that NEV sales will hit 6.5 million units this year, up from 3.5 million in 2021.

He said that the State Council's latest package of moves will ensure the sector continues its upward momentum.

Paul Gong, an analyst at UBS, said that vehicle electrification is an irrevocable trend in China and that the NEV industry is no longer reliant on financial stimuli and able to stand on its own.

He said electric vehicles used to be popular only in megacities where license plates for fossil fuel-powered cars are hard to obtain. But their popularity in smaller cities is rising fast as well.

"This means there is demand for such vehicles," Gong said. He estimates that sales of passenger NEV vehicles alone are expected to grow to 7.3 million units in 2023.

To better meet demand, the State Council said that China will further expand its charging infrastructure, a major factor in persuading customers to choose NEVs.

China already has the world's largest charging network, according to the China Electric Vehicle Charging Infrastructure Promotion Alliance.

The alliance said that by the end of June there were 3.9 million public and private charging pillars in the country, a year-on-year increase of 101.2 percent. For every charging pillar there were an average of 2.5 vehicles.

Some companies, including battery producer CATL and electric-car manufacturer Nio, are exploring new technologies such as battery swapping, which greatly reduces the time needed to charge vehicles.

Founder Securities estimates there will be more than 28,000 battery-swapping stations by 2025, serving 3.2 million battery-swapping EVs.

There were 1,582 such stations by the end of June, the alliance said.