China extends NEV purchase tax breaks to 2027

China will extend its tax breaks for the purchase of new energy vehicles (NEVs) between 2024 and 2027

The joint announcement was made by the country’s Ministry of Finance, State Taxation Ministration and Ministry of Industry and Information Technology on Wednesday June 21. The existing NEV tax exemption was due to end on December 31, 2023.

China’s purchase tax exemption on NEVs will remain in place between January 1 2024, to December 31 2027. Between January 1 2024 to December 31 2025, the total exemption amount per unit will not exceed 30,000 yuan ($4,179). The tax exemption, however, will be halved between January 1 2026 to December 31 2027 from its original 10%, with the per-unit exemption amount capped at 15,000 yuan.

The extension of the tax break is likely to have a positive effect on the country’s electric vehicle (EV) sales and the upstream battery raw materials market, sources told Fastmarkets.

“China’s general citizen consumption is weak and therefore the EV market is under a lot of pressure. Now that the citizens can directly benefit from this policy, I think there will be strong support to the EV market and the upstream battery raw materials demand,” a battery materials trader said.

Other market participants, however, were cautious toward the extent to which the tax exemption will support the EV market.

“The extension of the NEV purchase tax exemption was expected, so I am not sure how much strength it can give to the EV market and upstream battery raw materials market,” a second cobalt trader said.

The extension is the latest move from the Chinese government to boost the country’s strategic EV industry, a pillar of the country’s economy.

In May, the Chinese government turned to the country’s rural areas to bolster EV sales, but market participants were skeptical that such a strategy would increase the demand for EVs and battery raw materials due to a myriad of barriers such as a lack of sufficient charging stations.

China’s EV sales entering 2023 were underwhelming following the discontinuation of the country’s EV subsidies.

A price war which enveloped EV and conventional automobile sectors also led to a monthly decrease in EV sales in April.

Upstream battery raw materials, including lithium, nickel and cobalt have been on price downtrends for much of the first five months of 2023 due to limited spot demand amid sluggish EV sales.

Fastmarkets’ price assessment for lithium carbonate, 99.5% Li2CO3 min, battery grade, spot price range, exw domestic China was 310,000-325,000 yuan per tonne on Thursday June 15, narrowing down by 5,000 yuan per tonne from 310,000-330,000 yuan per tonne on June 8.

Battery-grade lithium carbonate prices in China fell to the year-to-date low of 150,000-180,000 yuan per tonne on April 20 from 490,000-520,000 yuan per tonne on January 5.

Fastmarkets’ price assessment for cobalt sulfate, 20.5% Co basis, exw China was 39,500-40,000 yuan per tonne on Friday June 16, up by 500 yuan per tonne from 39,000-40,000 yuan per tonne on June 14.

Cobalt sulfate prices also fell from 46,000-47,000 yuan per tonne on January 4, to 34,000-35,000 yuan per tonne on May 10, which was the lowest level this year so far this year.

Fastmarkets’ weekly price assessment for nickel sulfate, min 21%, max 22.5%; cobalt 10ppm max, exw China, was 33,000-34,000 yuan per tonne on June 16, up by 10,000 yuan per tonne from 32,000-33,000 yuan per tonne on June 9.

China’s nickel sulfate prices hit their year-to-date low of 31,000-32,000 yuan per tonne on May 19, from 36,000-37,000 yuan per tonne on January 6.

Keep up to date with global market insights and predictions for 2023 and beyond with our NewGen forecasts.

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