UBS reports that Chinese car buyers anticipate increased prices next year.

      BYD unveiled the Yangwang U9 sports car at Auto Shanghai 2023 on Tuesday, April 18, 2023. Credit: TechNode/Jill Shen

      Chinese consumers are bracing for significant car price hikes next year, as the central government begins to gradually eliminate its vehicle purchase incentives. This shift could lead to a spike in car sales, with reduced competition for automakers through the end of this year, according to a UBS analyst on Tuesday. "2025 will mark the last year electric vehicles can benefit from tax breaks on purchases, and consumer expectations regarding future price changes could elevate sales to unprecedented levels," Paul Gong, head of China auto research at UBS, informed reporters in Shanghai (translated). As reported by Reuters, China’s Ministry of Finance had previously announced that new energy vehicles (NEVs), which encompass all-electric and plug-in hybrid vehicles, will be exempt from purchase tax if bought in 2024 and 2025. However, this exemption will be reduced and limited to RMB 15,000 ($2,046), or 5% of the price, down from the original 10%, for vehicles purchased in 2026 and 2027.

      Nonetheless, international car manufacturers and newer electric vehicle startups will continue to face substantial competitive pressure from a variety of established Chinese companies in the early part of this year, attributed to an oversupply in relation to demand before and after the upcoming Lunar New Year holiday, Gong remarked. These observations come after prominent luxury automakers reported a downturn in 2024 within the world’s largest automotive market. Sales for BMW and Audi dropped 13.4% and 10.9% year-on-year, respectively, while Porsche saw a 28% decline from the previous year, with approximately 56,000 units sold.

      China’s extensive stimulus package aimed at enhancing car consumption could also serve as a positive factor for 2025, described as “more generous than anticipated” and indicative of Beijing’s dedication to economic growth, according to Gong. On January 8, the central government revealed it would maintain subsidies for the replacement of old vehicles as part of a broader trade-in program for consumer goods, including appliances and autos. Local consumers who exchange old cars for new ones this year will receive a one-time subsidy of up to RMB 20,000.

      In April of the previous year, Beijing announced subsidies for buyers of additional gas-powered or environmentally friendly vehicles of up to RMB 7,000 and RMB 10,000, respectively. This was later raised to RMB 15,000 and RMB 20,000 starting in August. Gong added that the stimulus package for 2025 is expected to be larger than last year’s measures, with UBS predicting it will have contributed to an additional 2 million car sales in 2024.

      Jill Shen is a technology reporter based in Shanghai, focusing on Chinese mobility, autonomous vehicles, and electric cars. Connect with her via email at [email protected] or on Twitter at @jill_shen_sh.

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