China’s State Council announced a two-year extension of the “new energy vehicle (NEV)” subsidy and tax exemption that would initially expire at the end of this year.
In response to the good news, shares of Tesla quickly rose 5.92% after US stock markets opened, and its market value soared about $5.4 billion to about $97.7 billion on Tuesday night. Stock of NIO, a Chinese EV maker that’s listed in the NYSE, also surged more than 5%.
Cui Dongshu, secretary-general of the China Passenger Car Association said the decision to extend the NEV purchase subsidy will boost NEV sales this year, alleviate production cost pressure for manufacturers, and promote domestic automakers to work on NEVs. He believes the stimulus measures will push NEV sales to reach the target of 1.6 million units in 2020, which will be a nearly 30% growth from last year.
Besides stimulus policies for NEVs, the State Council introduced additional policies to boost automobile consumption. The central government will replace subsidies with awards to support the elimination of diesel trucks with China III Emission Standards and below in key areas such as the Beijing-Tianjin-Hebei region. And for second-hand car dealers, VAT for 0.5% of sales will be deducted from May 1 this year to the end of 2023.
Ping An Securities pointed out in its research paper that the auto industry may be the first choice to stabilize domestic demand in 2020 under the global coronavirus outbreak. The reason is that the auto market can be effectively stimulated with a variety of stimulus policies that will have minimal future repercussions. They predict that incentive measures can narrow the decline in the auto market in 2020 from 12% to 3-7% year-on-year.