China Automobiles : Purchase tax exemption to boost new energy vehicle sales in China

What’s new

    1) On Aug 29, China’s Ministry of Industry and Information Technology(MIIT) and State Administration of Tax announced the Directory of NewEnergy Vehicle Models for Exemption of Vehicle Purchasing Tax (the firstbatch). The purchase tax is c.10% of car prices and the exemption will beeffective from Sep 01 2014 through the end of 2017 (see details in Exhibit1). 2) On Aug 27, Bloomberg reported that the Chinese government isconsidering providing Rmb100bn in funding to build electric vehiclecharging infrastructure to spur demand for clean energy cars.

    Our analysis

    We believe the announcement of the directory will boost new energyvehicle sales in China for two reasons: 1) the 10% savings from thepurchase tax exemption could make new energy vehicles more attractiveto those potential buyers who are more price sensitive; 2) the directorycould serve as the list of models that can qualify for new energy vehiclesubsidies nationwide, and hence reduce potential local protectionistbehavior. (Currently, each city has its own list of new energy vehiclemodels that qualify for local subsidies, with locally-made models getting abigger proportion of subsidies from local governments.)The second piece of news, if true, would improve the density of chargingfacilities significantly in China, and hence ease mileage anxiety forpotential buyers of new energy vehicles.

    We also believe announcements of any additional models that are eligiblefor tax exemptions would provide further policy tailwinds for new energyvehicles.

    Implications

    We believe those companies that are actively launching new energyvehicles will benefit the most from such policy tailwinds, such as: BYD(1211.HK, Neutral), JAC (600418.SS, Neutral), SAIC (600104.SS, Buy),Dongfeng (0489.HK, Neutral), and Geely (0175.HK, Neutral, the new energyvehicle models were made by its JV with Kandi).