CHINA unveiled on Wednesday (Jun 21) a 520 billion yuan (S$97 billion) package to boost sales of electric vehicles (EVs) and other green cars over the next four years to prop up softening auto demand, sending shares of automakers sharply higher.

The package was widely expected after an earlier government pledge to promote the industry. It comes as softening sales in the world’s biggest auto market have raised concern over economic growth, which is losing momentum after a brisk start to the year.

New-energy vehicles (NEVs) purchased in 2024 and 2025 will be exempted from purchase tax, amounting to as much as 30,000 yuan per vehicle. The exemption will be halved for purchases made in 2026 and 2027, China’s Ministry of Finance said in a statement.

The total tax breaks will amount to 520 billion yuan, said Vice-Minister of Finance Xu Hongcai at a press conference.

The move is an extension of the current policy, under which NEVs – which include all-battery EVs, plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles – are exempt from purchase tax until the end of 2023.

Wednesday’s announcement marks the fourth extension of the tax break, which was first announced in 2014. Earlier extensions were enacted in 2017, 2020 and 2022.

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“The extension by another four years beat market expectations,” said Cui Dongshu, secretary-general of the China Passenger Car Association. He added that the costly extension of the exemption suggests additional stimulus measures would be unlikely.

Chinese auto shares rallied after the announcement, with EV makers Nio and Xpeng rising 6.1 per cent and 5.5 per cent respectively, versus a 2.4 per cent drop in Hong Kong’s benchmark index. Li Auto also surged 3.5 per cent.

The announcement follows a Cabinet meeting on Jun 2, during which authorities said they would extend and optimise the tax exemption and study policies to promote NEV development.

The incentives put NEVs, a mainstay of big-ticket spending, on the front burner of a broad-based push to rekindle growth in the world’s second-largest economy. The government heavily promoted NEVs in recent years to curb air pollution, through incentives that supported the rise of local players such as Nio, Li Auto and BYD.

NEV sales suffered a hit earlier this year after the government ended a more than decade-long subsidy for EV purchases. But they bounced back after automakers, including Tesla, cut prices to defend market share, and after the previous extension of the purchase-tax exemption.

“This will aid China’s EV growth,” said Susan Zou, vice-president at researcher Rystad Energy. She added that she anticipates EVs sales to grow 30 per cent in 2024, accelerating from the 15 per cent estimated this year.

NEV sales rose 10.5 per cent in May from a month earlier, data from the China Passenger Car Association showed. They jumped 60.9 per cent from a year earlier, when Covid-19 curbs still roiled auto production and sales.

This month, the commerce ministry announced a nationwide campaign to promote automobile purchases in a major push to shore up demand in the world’s largest auto market. REUTERS