Major Developments in 2023
In 2023, the macroeconomic recovery continues to improve in China, which helps the stable growth of the automobile industry. Driven by a series of effective policies, the Chinese automobile market achieved growth. Notably, new energy vehicles (NEVs) still maintained rapid expansion, with production and sales of 9.587 million and 9.495 million, increasing by 35.8% and 37.9%, respectively, compared with 2022. The market share increased to 31.6%, 5.9 percentage points higher than in 2022, and the production and sales of NEVs have shown significant growth. NEVs are rapidly replacing traditional fuel vehicles, which forms an alternative relationship between them.
Macro Industry Planning
To achieve the strategic objective of reaching “carbon peak” and “carbon neutrality” and to implement the “New Energy Automobile Industry Development Plan (2021-2035)” effectively, several government ministries jointly issued a notice on January 30, 2023. This notice outlines plans for pilot projects aimed at electrifying vehicles in various public sectors from 2023 to 2025, with a focus on official vehicles, urban transport, rentals, sanitation, postal services, logistics, and airports. The goal is to significantly increase the electrification of vehicles, aiming for 80% of new and replacement vehicles in these sectors to be New Energy Vehicles (NEVs). The notice also encourages the use of NEVs in specific scenarios like short-distance transport, urban construction, and mining sites. It supports innovations in business models such as battery swapping and financial leasing. Additionally, it calls for improvements in policy support systems, including financial incentives, operational subsidies, and the creation of low/zero carbon emission zones tailored to local conditions. Furthermore, to promote NEV adoption in rural areas and support the rural revitalisation strategy, a joint notice was issued on June 12, 2023. This initiative, running from June to December 2023, involved the participation of 69 NEV models in both offline and online activities. These activities included launch ceremonies, exhibition tours, and online promotions to encourage green travel among rural residents and contribute to the construction of beautiful villages.
Credits Compliance Policies
On July 6, 2023, the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, and the State Administration for Market Regulation jointly issued the “Decision on Amending the Measures for the Parallel Management of Corporate Average Fuel Consumption and New Energy Vehicle Credits for Passenger Vehicle Enterprises”, which was implemented on August 1, 2023. The revised policy lowers the average score of new energy passenger vehicle standard models by about 40% and adjusts the calculation method and the upper limit of scores accordingly. The new energy passenger vehicle credits calculation methods in 2023 and 2021 are compared in Table 1. Additionally, A new chapter titled “Management of New Energy Vehicle Credit Pool” was added to establish a credit pool management system. When the annual supply and demand ratio of positive and negative points of NEVs exceeds two times, the credit pool storage will be activated, allowing enterprises to store positive NEV credits into the pool voluntarily. Stored credits will be valid for five years.
Fiscal and Tax Policies
In 2023, the national direct financial subsidy policy for NEVs was withdrawn. To support the development of the new energy automobile industry and promote automobile consumption, on June 19, 2023, the Ministry of Finance, the State Administration of Taxation, the Ministry of Industry, and Information Technology jointly issued the “Announcement on Extending and Optimising the Purchase Tax Reduction and Exemption Policy for New Energy Vehicles”. The NEV purchase tax exemption policy, initially set to expire on December 31, 2023, has been extended to December 31, 2027. During this period, the vehicle purchase tax will be fully exempted from January 1, 2024, to December 31, 2025, and reduced by half from January 1, 2026, to December 31, 2027. The tax reduction and exemption for new energy passenger vehicles are capped at $4,167 for the whole exemption period and $2,083 for the half exemption period. To strengthen and standardise the management, the Ministry of Industry and Information Technology and the State Administration of Taxation have managed the NEV models enjoying the reduction or exemption of vehicle purchase tax by issuing the “Catalogue of New Energy Vehicle Models exempted from Vehicle Purchase Tax.”
Outlook
2023 is the first year China’s national subsidies for NEVs are cancelled, and the policy development trend transits from government fiscal and tax policies to market-driven ones. Lower-tier cities and rural areas have huge development potential and will be the primary source of NEV sales. BEVs are expected to remain the main driver of NEV increments in 2024. PHEVs that can better meet the demand of users in multi-scenario will accelerate the replacement of traditional fuel vehicles. The share of PHEVs and E-REVs in NEVs (especially mainstream household models and high-end large SUVs) will further increase. With the increase in the product matrix richness of NEV models in the supply side of NEV enterprises and the improvement of charging supporting facilities, consumers’ awareness of the benefits of new energy and intelligent driving is expected to strengthen. The introduction of new technologies and models by various automakers will stimulate consumer purchasing intentions, thereby boosting industry demand. China’s NEV market is expected to be the incremental market competition formed by rapid sales volume growth. The penetration rate of NEVs, especially in larger spaces, more advanced technologies, and products that align closely with consumer demands, is expected to rise swiftly.
