Tax-Free Electric Cars for China

There will probably be champagne corks popping in the Tesla factory in California as an announcement carried by Chinese newspapers has let the world know that buyers of electric, hybrid and fuel cell cars will be able to purchase tax-free vehicles starting this September. This will remain in force until the end of 2017.

The news came as a bit of a surprise to most and, in effect, it means that all electric cars and other types of "new energy" vehicles will be exempt from purchase tax, the government said, in a new initiative designed to further the centralised fight against pollution and ever climbing fuel imports.

According to state media, this will save the average buyer about 10% if they buy a new car. The trouble with this is that in most territories, the cost of the alternative fuel is more than 10% greater than the same hydrocarbon-powered vehicle and, as we have written before, there is scant recharge facilities available anywhere in that territory.

‘For achieving industrial development and environmental protection, this is a win-win,’ the state council said, in a somewhat upbeat message obviously designed to galvanise the masses into some form of action. The exemption applies to all vehicles, imported and domestically produced ones, the statement said, adding that the government would compile a catalogue of eligible models.

There has been a number of state-lead initiatives by the central and local governments in China to increase ownership of electric and hybrid vehicles, to ease chronic pollution and reduce reliance on oil imports, but high prices, lack of infrastructure and consumer reluctance have been obstacles.

There is a government target of having five million new energy vehicles on the streets by 2020, but the uptake has been slow and at present there are only 70,000 in use, according to a recent report from the China Daily newspaper. There is also an outright subsidy on offer from the central government for electric passenger car buyers, which were set at US$5,700 to US$9,800 last year, while local incentives can bring the price down further.

Lack of charging stations and the desires of Chinese consumers - many first time owners are trying to impress their friends and thus opt for more aspirational cars or big, flashy vehicles - have most definitely hurt demand for EV’s.

Policymakers are seeking to move away from state spending to domestic consumption as a key driver of the economy, which has been slowing. The heavyweights in the world of auto making have announced plans to develop environmentally-friendly vehicles in China, despite the currently small market.

Famously, US electric carmaker, Tesla Motors, has also caused a stir with aggressive marketing and by pitching its imported vehicles to luxury buyers in China, although analysts say they might only find a niche market, and of course of late, Elon Musk has announced an almost open source policy for his company’s patented technology.