Rumors have recently surfaced that China's subsidies for NEVs may be renewed, but the amount will be only 50 percent of what it was in 2022.

(Image credit: CnEVPost)

China's state subsidies for new energy vehicle (NEV) purchases may be renewed in 2023, albeit on a smaller scale, latest rumors said, contributing in part to the sector's strong performance in the stock market in recent days.

Rumors have recently emerged that China's policy of reducing the purchase tax levied on mainstream internal combustion engine (ICE) vehicles is expected to be extended into 2023, and that subsidies for NEVs could also be renewed, but at only 50 percent of the 2022 amount, local media Cailian said in a report on Wednesday.

The sudden appearance of the rumors sent the auto sector up strongly in the stock market on Wednesday, the report noted.

Notably, executives from several car companies as well as people from auto industry associations said they had no knowledge of the rumors when asked about them, the Cailian report said.

China halved the purchase tax from 10 percent to 5 percent on 2.0-liter and smaller displacement ICE passenger cars priced at no more than 300,000 yuan ($42,540) in June. The policy is set to expire at the end of this month.

For the NEV industry, current support policies include state purchase subsidies as well as purchase tax exemptions, of which the former is also set to expire at the end of this month, while the latter has been extended until the end of 2023.

China's Ministry of Finance initially released plans on April 23, 2020, for the country's subsidies for NEVs to be scaled back each year, saying that in principle the subsidies would be reduced by 10 percent, 20 percent and 30 percent each year from 2020-2022, respectively, from the previous year.

By 2023, the country will not provide any subsidies for NEV purchases, according to the plan.

Last December 31, the Ministry of Finance reiterated in an announcement that the subsidy policy will not continue starting in 2023.

The 2022 subsidy policy for NEV purchases ends on December 31, 2022, and vehicles with license plates obtained after December 31, 2022, will no longer be eligible for the subsidy, the announcement said.

Therefore, there was no previous expectation that the NEV purchase subsidy would be renewed.

As the Covid outbreak has become more frequent in China this year, the control measures have not only affected consumer sentiment, but have also severely impacted the sales activities of car companies.

Many had expected that with the subsidy policy set to expire at the end of the year, consumers would bring forward their demand for next year's vehicles to this year.

However, the recent performance of China's NEV market showed that this does not appear to be a reality, which may be a reason why the latest rumors are starting to emerge.

Retail sales of NEVs in China are expected to be around 600,000 units in November, up 58.5 percent year-on-year and up about 8 percent from 556,000 units in October, according to estimates released by the China Passenger Car Association (CPCA) on November 25.

The impact of the Covid outbreaks have continued to expand this month, making it difficult for policies to stimulate consumption to work and the auto market has failed to recover quickly, the CPCA said.