China is talking with automakers about extending costly subsidies for EVs that were set to expire this year.
China is in talks with automakers about extending substantial electric vehicle (EV) subsidies that were supposed to expire in 2022 to maintain a critical market thriving while the broader economy slows, as reported by Reuters, citing three people familiar with the matter.
Over the recent years, the Chinese government has been decreasing its EV support, but now, it may be forced to extend its subsidies due to the declining market. China’s economy, including the automotive sector, has been hit by the tight COVID-19 shutdowns. This leads to disrupted supply chains that affect production in different sectors.
According to unnamed sources, Chinese government departments, including the Ministry of Information and Industrial Technology (MIT), are considering continuing the subsidies for EV buyers in 2023.
An estimate of 100 billion yuan ($14.8 billion) was spent by China on EV subsidies when it began in 2009.
“China’s expensive incentive program has been credited with creating the world’s largest EV market. Since the subsidies began in 2009, some 100 billion yuan ($14.8 billion) has been handed out to buyers including commercial fleet operators up to end-2021,” according to an estimate by Shi Ji, an auto analyst with China Merchants Bank International.
Last 2020, China’s Ministry of Finance announced that the subsidies for new EVs would be scaled back each year, saying that amounts will be reduced by 10%, 20%, and 30% each year from 2020-to 2022, respectively, from the previous year.
China originally ended the policy in 2020 but was extended for two more years.
The full terms of the extension for 2023, including the amount of subsidy and the vehicles that will qualify, has not yet been finalized, according to the unnamed sources.
Accordingly, for 2022, there is no sales tax on EVs, and the government plans to raise the tax to 10% of the purchase price in 2023. Instead, the rates would just be increased to 5%.
Currently, China is the largest and fastest-growing market for Plug-in vehicles. Last March, the country’s EV sales grew up to 26%, with units sold more than 800,000. Its total plug-in car sales exceed 1 million during the first quarter of 2022.