EV Tax Incentive Rollback Hits Budget Models, Accelerating Market Polarization

Starting January 1, 2026, China’s purchase tax exemption policy for new energy vehicles (NEVs) will end and be replaced by a halved tax rate of 5%. Affected by this change, cumulative retail sales of NEV passenger cars from January to April 2026 reached 2.758 million units, a year-over-year decline of over 10%. In April alone, retail sales totaled 849,000 units, down 6.9% year-on-year. Data shows that sales of low-priced NEVs under RMB 80,000 plummeted by 47.8% year-on-year, with micro-car retail volumes dropping by 67% cumulatively. Sales in the RMB 150,000–200,000 price segment also declined by 14.4%. In contrast, other price segments experienced only minor fluctuations or posted positive growth. Consumer sensitivity to the purchase tax adjustment varies significantly by budget: buyers of RMB 80,000-level models—facing an increase of several thousand yuan in total vehicle cost—have delayed purchases, while those buying vehicles priced above RMB 250,000 remain more focused on product performance and service, making them less sensitive to tax changes. Brand performance has diverged markedly. Brands whose core offerings are concentrated in the low-price segment have come under significant pressure. For example, Wuling Hongguang MINIEV recorded cumulative retail sales of just 35,800 units from January to April 2026, a sharp year-on-year drop that dragged the brand’s overall sales down by nearly 30%. Similarly, Arcfox T1 sales plunged from 17,100 units in December 2025 to only 3,000 units in February 2026. Conversely, brands with diversified price positioning or a focus on the mid-to-high-end market demonstrated greater resilience: Geely Galaxy Lumin saw sales rise by 15.6% year-on-year during the first four months, while BYD Seagull’s decline remained below the market average. Xiaomi and NIO reported delivery growth of 13.4% and 72.2%, respectively, over the same period. At the beginning of the year, some automakers introduced purchase tax subsidies to stabilize orders, but most of these incentives were phased out or made subject to strict conditions by the end of Q1. Current subsidies are largely limited to time-bound benefits for newly launched models or inventory-clearance promotions, rather than broad-based measures. Consumer responses have accordingly diverged: some shifted to models still eligible for subsidies, while others adopted a wait-and-see approach, anticipating new policy stimulus. However, industry consensus holds that the government will shift toward market-driven adjustments and is unlikely to reinstate large-scale direct subsidies. Analysts note that the market is currently in a transitional phase following the policy shift. Short-term sales volatility stems from multiple overlapping factors and does not yet indicate a clear long-term trend. As policy-driven tailwinds fade, competition in the industry is shifting from reliance on subsidies to being driven primarily by product competitiveness and cost efficiency.