NEV Purchase Tax Reduced to Half in 2026; Automakers and Consumers Rush to Catch Final Policy Benefits

Effective January 1, 2026, China’s decade‑long full exemption of vehicle purchase tax for new energy vehicles (NEVs) will transition to a 50% reduction, directly affecting consumer budgets and vehicle purchase costs. The Ministry of Industry and Information Technology, Ministry of Finance and State Taxation Administration recently issued joint technical requirements for NEV models eligible for tax relief in 2026–2027, making “no exemption without compliance” the prevailing industry principle.

Automakers have accelerated their plans in response. Manufacturers are concentrating new model launches in the second half of the year to exploit the remaining policy window, stimulate order intake and pursue annual sales targets, while releasing model lineups slated for delivery next year and deploying purchase‑tax difference subsidy schemes to shore up demand. Industry participants view the policy shift as a structural move from incentive‑driven expansion toward development based on core capabilities; competition is expected to refocus on technology, brand strength, service and user experience, inaugurating a longer‑term quality competition.

The October 9 joint notice clarifies adjustments to technical standards for battery capacity and hybrid systems applicable to pure battery electric passenger vehicles and plug‑in (including range‑extended) hybrids, and requires that models listed in the NEV tax reduction catalogue meet the updated criteria from 2026. The new measures are intended to encourage technological upgrades, improve driving experience and strengthen product safety and competitiveness. Cui Dongshu, Secretary‑General of the China Passenger Car Association, commented that tighter standards will prompt higher‑performance models that satisfy consumer demand for longer range and lower energy consumption, supporting both market expansion and green development. A representative of a rising EV brand, speaking under the alias Wang Huan, described the revisions as evidence of industry technical progress and as a mechanism to incentivize more focused technological improvements, aligning with broader efforts to reduce excessive market fragmentation.

Since 2014, China has exempted NEV purchasers from vehicle purchase tax, with a per‑vehicle cap of RMB 30,000; 2025 is the final year of full exemption. In 2026 and 2027 the policy will change to half exemption, with a maximum per‑vehicle tax reduction of RMB 15,000. The RMB 15,000 cap means models priced at RMB 300,000 or below that meet the catalogue criteria will continue to benefit, while a RMB 500,000 model’s tax reduction would fall from RMB 30,000 to RMB 15,000, reducing the effective subsidy rate from 60% to 30%.

Market participants are broadly cautious about the impact. William Li, founder of NIO, warned that first‑quarter 2026 could see substantial pressure across manufacturers and that the policy shift may prompt an earlier release of demand, estimating NEV sales in Q1 2026 could amount to roughly half of Q4 2025 volume. At the 2025 World New Energy Vehicle Congress, an executive from a central enterprise recommended a gradual implementation of the tax change, beginning in the off‑season to smooth the transition.

Because eligibility for the reduced tax is tied to technical compliance, some platforms and powertrain choices face greater challenges than others. Industry observers note range‑extended vehicles generally have an easier path to meet standards, while heavier conventional plug‑in hybrids may encounter greater difficulty. Across interviews, a consensus emerged that phasing out tax incentives in favor of differentiated tax rates, standardized technical thresholds and refined management represents an inevitable step as the industry matures from policy support to market competitiveness.

With the countdown to the tax adjustment underway, automakers are aggressively pursuing the remaining incentive cycle. September saw an unprecedented concentration of new model debuts—more than 70 launches—an intensity many executives described as decisive for annual targets and future positioning. Published monthly data indicate brands such as XPeng, Leapmotor and Xiaomi（01810.HK）have accumulated relatively high progress toward their annual sales goals, whereas others including BAIC and Zeekr face steeper challenges in the fourth quarter. Industry sources stress that companies unable to scale sales during the policy window will confront greater difficulty next year, underscoring how the tax change can materially influence firm performance.

Retail data released by the China Passenger Car Association on October 13 show NEV passenger vehicle retail sales of 1.296 million units in September, up 15.5% year‑on‑year and 16.2% month‑on‑month, indicating an accelerating substitution effect from traditional internal‑combustion vehicles. While concentrated model launches have driven order growth for some manufacturers, cross‑year tax changes introduce new complexities for orders that cannot be delivered and invoiced before year‑end. A NIO dealer in North China reported that customers placing orders for the new ES8 now face several months of waiting, making timely year‑end invoicing unlikely for many buyers.

To mitigate consumer hesitation, several manufacturers have introduced purchase‑tax differential subsidy schemes. NIO offers customers who lock orders now but receive delivery next year a purchase‑tax subsidy voucher of up to RMB 15,000; similar arrangements have been announced for certain Huawei‑affiliated models such as AITO and ZUNJIE. Observers interpret these measures as a transfer of tax‑policy risk from buyers to manufacturers, a tactic designed to convert cautious consumers into confirmed orders. Market commentators expect Xiaomi（01810.HK）may consider comparable incentives given its financial capacity, although the challenge of managing cancellations or order modifications from buyers who only learn upon ordering about delayed delivery remains significant.

Following the surge in orders, delivery capacity becomes the binding constraint. The final months of exemption—September and October—have been a concentrated window for consumers to secure tax‑free purchases. As awareness of the impending cost increase grows, buyer behavior is shifting. Wang Huan noted that models failing to meet the new technical criteria will lose tax relief eligibility, narrowing short‑term model choice but ultimately prompting higher‑quality supply.

Field visits by Securities Times reporters indicate that NEV promotions increasingly emphasize non‑price “new car benefits,” whereas fuel vehicle campaigns rely more on direct price concessions. In Beijing, dealers reported substantial discounts on conventional models, with some premium German brand offers exceeding RMB 100,000; one centrally located Audi store cited cash incentives above RMB 150,000. Despite the phase‑out of full tax exemption, NEVs retain competitive advantages in intelligence, total cost of ownership and driving experience, sustaining strong consumer demand.

The decade‑long exemption policy played a pivotal role in scaling China’s NEV industry from its infancy to its current prominence. Domestic NEV retail penetration has exceeded 50% for multiple months in 2025, and industry participants commonly view the sector as transitioning from a policy incubator to a market‑driven ecosystem. Cui Dongshu concluded that the market moving forward will test manufacturers’ fundamental product strengths, cost control and adaptability.