by ZHOU Shuqi and WANG Zhuli
China will end its decade-long full purchase-tax exemption for new-energy vehicles (NEVs) from January 2026, introducing a 5% levy—half the normal rate—linked to stricter technical and efficiency standards.
Under the new rules announced by the Ministry of Industry and Information Technology (MIIT), only models meeting higher performance benchmarks will qualify for the tax break. Plug-in hybrids must have a minimum 100 km (62 miles) of pure-electric range, up from 43 km, while energy and fuel-consumption limits are tightened according to vehicle weight. The policy will apply under the GB 36980.1-2025 national standard, which also introduces tougher efficiency benchmarks for battery-electric cars.
YANG Jing, a director of Fitch Ratings, said the higher technical bar fits Beijing's push to curb price wars and foster healthier competition in line with its broader campaign against excessive rivalry in key industries. She added that the NEV sector remains oversupplied, and firms lacking R&D capability may lose tax perks and be forced out as the market rebalances.
Most mainstream electric vehicles already comply with the new national efficiency standards, industry sources said, but plug-in hybrids face stricter limits that scale with vehicle weight, making compliance harder for heavier models with industry data showing nearly half would not qualify under the new rules.
ZHANG Kangkang of Tsinghua University said the rules will push automakers to improve efficiency rather than add batteries, noting that revised fuel-use criteria for hybrids are tougher than they appear.
Major carmakers are adjusting their product lines. BYD will end production of Qin PLUS plug-in models with less than 100 km of range, replacing them with 128 km versions priced from 79,800 yuan (about US$11,000). The car maker is also offering 10,000-yuan cash discounts and free accessories on non-compliant vehicles. Geely dealers said the company may upgrade its Galaxy L6 and Xingyao 8 models to comply with the new rules without raising prices.
Several plug-in and range-extended models launching in 2025 will feature larger battery packs to qualify. The IM Motors LS6 extended-range version already carries a 66-kWh battery and 450 km electric range, surpassing many BEVs.
Dealers said buyers had anticipated the change and no rush has emerged ahead of the deadline as local trade-in subsidies incentives are also being phased out. Yang of Fitch said any fourth-quarter buying spree will likely be milder than expected, and the policy impact in the first quarter of next year should be limited.
