Shares of Chinese electric vehicle companies Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV) are up by nearly 3% in pre-market trading on Wednesday after China extended a tax exemption policy for new energy vehicles (NEV).
According to the policy, jointly released by China’s Ministry of Finance (MoF), Ministry of Industry and Information Technology (MIIT), and the State Taxation Administration (STA), NEV purchase tax will be exempt for purchases made between 2024-2025 and will be halved (5%) between 2026-2027. In addition, the tax exemption amount should not exceed RMB 30k (RMB 1 = $0.1391) per car in 2024-2025 and should not exceed RMB 15k per car in 2026-27.
When it was reported that tax incentives could be extended by four more years a few weeks ago, UBS analysts believed the incentives could retreat over time as EV penetration increases and gains rising competitiveness over ICE cars. Compared to original expectations of 0%, 2.5%, 5% and 7.5% tax rate for 2024-27, the actual policy is slightly more generous than expected.
China first began exempting NEVs from purchase tax in September 2014 for the development of NEVs. The policy expired at the end of 2017 and was extended until the end of 2020. In April 2020, China extended the policy again until the end of 2022. In September 2022, government announced that the purchase tax exemption for NEVs would continue until the end of 2023.
Shares of LI, NIO and XPEV are up 3.11%, 2.99% and 2.39% respectively in pre-market trading on Wednesday, while Tesla (NASDAQ:TSLA) is up by 0.48%.