Is It More Cost-Effective to Buy an Electric Vehicle This Year or Next? Understanding Changes in China’s New Energy Vehicle Tax Policy

The adjustment of the new energy vehicle (NEV) purchase tax policy raises an important question: is it more cost-effective to buy a car this year or next year? As of October 9, 2025, the Ministry of Industry and Information Technology, the Ministry of Finance, and the State Taxation Administration jointly announced new technical requirements for the exemption of vehicle purchase taxes for NEV products for 2026-2027. This marks a significant turning point for the Chinese NEV industry, which is moving from a “policy-driven” to a “market-driven” model.

Since its implementation in 2014, the purchase tax exemption policy has undergone three extensions and is set to end in 2025. Starting in 2026, a new phase will begin with a 50% reduction in tax. This long-standing policy has been a major catalyst for the rapid expansion of the NEV market in China, and its adjustment will directly impact consumer purchasing costs, product strategies for car manufacturers, and the overall direction of the industry.

Key Changes in Policy: Tax Reductions and Increased Technical Standards

According to the announcement, from January 1, 2026, to December 31, 2027, consumers purchasing NEVs listed in the tax exemption directory will benefit from a 50% reduction in vehicle purchase tax, with a maximum deduction of 15,000 yuan per vehicle. This contrasts with the current full exemption of up to 30,000 yuan, which will increase the purchase cost for certain price segments. Under the new policy, the vehicle purchase tax is calculated at 10% of the purchase price (excluding VAT), resulting in an effective tax rate of 5% after the reduction. For vehicles costing 300,000 yuan or less, the tax will be directly calculated at the 5% rate; for vehicles over 300,000 yuan, the tax will be calculated at 10% and then reduced by the 15,000 yuan limit.

Another significant change is the substantial increase in technical standards. The pure electric range requirement for plug-in hybrid vehicles (including extended-range versions) will rise from the current 43 kilometers to 100 kilometers, a 132% increase. Additionally, pure electric vehicles must meet new standards for energy consumption, with some quality benchmarks also adjusted. These changes may disqualify some existing models from tax benefits.

Market Reactions: The “Last Train Effect” for Manufacturers and Consumers

The anticipated policy changes have triggered a strong market response. Car manufacturers are adopting various strategies to cope with these changes. Mainstream brands are counteracting the increased tax burden by lowering prices or launching more cost-effective models, while luxury brands focus on technological differentiation to reduce price sensitivity. The “last train effect” is already visible, with a surge in new vehicle releases. In September 2025, over 70 new models were launched, leading to a retail sale of 1.296 million NEVs, a year-on-year increase of 15.5% and a month-on-month increase of 16.2%.

For popular models that require a waiting period for delivery, such as the new NIO ES8, AITO M7, and Xiaomi YU7, manufacturers have introduced subsidy policies to cover the tax difference. NIO has stated that if the delivery is delayed until next year due to the manufacturer, consumers can use a tax difference subsidy voucher to offset the vehicle price, up to 15,000 yuan. Consumer decision-making is showing clear divisions; those with urgent purchasing needs wish to take advantage of the policy changes, while non-urgent consumers are adopting a wait-and-see approach, hoping for additional promotional offers from manufacturers.

Impact on the Industry Chain: Accelerated Technological Upgrades and Industry Restructuring

The policy adjustments are already influencing the industry chain. According to experts from the China Automobile Dealers Association, the gradual phasing out of the tax exemption policy signals a governmental shift toward encouraging the NEV industry to grow independently of policy support. The increased technical standards are accelerating industry restructuring. Leading companies, leveraging their technological advancements and scale advantages, may expand their market shares, while weaker enterprises face the risk of being eliminated. This competitive mechanism will help eliminate outdated capacities and enhance the overall technological level of NEVs.

The changes will also shift competition between NEVs and traditional fuel vehicles from being policy-driven to technology-driven, resulting in a diversified and differentiated market. In the future, breakthroughs in technology, industry chain collaboration, and policy guidance will be key factors determining the competitive landscape. According to Cui Dongshu, secretary-general of the Passenger Car Market Information Association, “Strict standards encourage companies to develop higher-performance models that meet consumer demands for long range and low energy consumption, promoting both market expansion and green low-carbon development, achieving a win-win for industry upgrades and consumer upgrades.”

Consumer Decision Guide: Timing and Model Selection

In light of the policy adjustments, consumers need to develop a reasonable purchasing strategy. Those interested in plug-in hybrid models with an electric range under 100 kilometers should complete their purchases by December 31, 2025, to benefit from the current full tax exemption. It’s important to note that some dealers may clear stock of models that do not meet the new regulations, likely offering significant discounts. For instance, several BYD models, such as the Qin PLUS DM-i 55km version and the Song Pro DM-i 75km version, will be heavily impacted due to their electric range not exceeding 100 kilometers.

For consumers planning to purchase after 2026, it is essential to adjust their cost estimates accordingly. For a model priced at 150,000 yuan, consumers will need to pay an additional 7,500 yuan in vehicle purchase tax in 2026. If manufacturers pass on the cost due to technological upgrades, total expenses may increase further. Consumers who are not in a hurry to buy may choose to wait for new models that meet the new standards. Encouraged by policy changes, manufacturers will likely launch more products with longer ranges and lower energy consumption, ultimately providing consumers with better quality products and experiences.

The next two years are crucial for the transformation of China’s NEV industry from a “policy-driven” to a “market-driven” model. As 2026 approaches, market competition will increasingly focus on technology, branding, service, and user experience. Leading companies have already begun to prepare. BYD and GAC Aion, for example, plan to introduce more high-spec models priced under 300,000 yuan in response to the 2026 policy adjustments, while companies like NIO and Li Auto enhance user experiences through advancements in intelligent driving and battery swapping services, thus reducing price sensitivity. Consumers can expect more high-quality options but should be prepared for cost increases associated with some technological advancements. After industry restructuring, surviving companies will likely exhibit stronger competitiveness.