Chinese government cuts state subsidies for EV manufacturers
China is cutting export tax rebates for vehicles with alternative powertrains. With exports being a key growth driver, this puts Chinese automakers under pressure - just as domestic sales are slumping.
Image: BYD
The Chinese government is reducing state support for the export of new energy vehicles (‘NEVs’). Specifically, the Ministry of Finance and the State Taxation Administration in Beijing have announced that the value-added tax (VAT) rebate for the export of battery-electric vehicles, plug-in hybrids in the passenger car segment, as well as electric buses and electric tractor units, will be lowered from the current 13 per cent to 9 per cent starting 1 April 2027.
The 13 per cent rebate previously covered all regular VAT payments incurred on purchased goods during vehicle production. This avoided double taxation of exported vehicles due to additional import VAT and allowed prices abroad to be set correspondingly low.
With the rebate rate reduced to 9 per cent, four percentage points of the tax will now remain as a genuine cost for manufacturers, as this difference will no longer be reimbursed by the state. Existing regulations regarding rebates and exemptions from consumption tax remain unaffected by this measure.
China gradually phases out support for ‘future-oriented’ industries
While the Chinese government did not specify a particular reason for these measures, economists attribute the adjustments to the increased global competitiveness of the Chinese industry. The measures aim to curb aggressive price competition in international markets and encourage manufacturers to compete more on the basis of technology, brand quality and service rather than state-subsidised discount prices.
The reduction in tax rebates is another step by China to gradually phase out state subsidies for key future-oriented industries once they reach a certain level of market maturity. For example, VAT rebates for the export of solar modules were already eliminated on 1 April 2026, while the rebate rate for batteries is being gradually reduced and is set to be completely phased out by early 2027.
For Chinese automotive groups, the cut in tax rebates comes at a sensitive time, as overseas business currently needs to compensate for declines in the domestic market. According to data from the industry association CAAM, exports of new energy vehicles increased by 130 per cent to over four million units in the first nine months of 2026, while domestic sales declined by 9.4 per cent in September.
Analysts at Deutsche Bank estimate that the net profit of industry leader BYD will decrease by approximately 5,000 yuan (~€670 euros) per exported vehicle starting from the second quarter of 2027. BYD sold over 1.34 million vehicles abroad in the first three quarters of 2026 – nearly 43 per cent of its total sales. Other leading manufacturers such as Chery, Geely, SAIC Motor, Great Wall Motor, Changan, Leapmotor, GAC and Xpeng will likely also be forced to absorb the new financial burden through increased efficiency, price adjustments or lower margins.