Chinese electric vehicle (EV) stocks Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV) are in the green today following an announcement that the Chinese government may extend EV tax exemptions. The news was reported via Chinese state television, which caused both Li Auto and XPeng to surge higher by 6% in Hong Kong. Meanwhile, Nio traded higher by 4% in Singapore.
Chinese EV stocks have had a volatile year due to Covid-19 lockdowns in several key cities. These lockdowns have further exacerbated supply chain challenges. The fear of a resurgence of coronavirus cases and lockdowns is still present, but the country recently reported its lowest number of new cases since February. Additionally, none of China’s top 50 cities by economic size currently have widespread restrictions in place. In April, zero new cars were sold in Shanghai due to the lockdowns.
With that in mind, let’s get into the details of the tax exemptions.
Why Are Chinese EV Stocks NIO, LI, XPEV Up Today?
The Chinese government is reportedly considering extending tax exemptions by 200 billion yuan, or roughly $30 billion. This extension would increase EV demand and benefit the used-car market as well. In 2009, the government enacted subsidies to help stimulate the EV market. These subsidies will phase out by 2023. On top of that, a 10% EV purchase tax exemption is set to expire by the end of the year.
In May, Chinese passenger vehicle sales were down 17% year-over-year (YOY). In April, passenger vehicle sales were down 36% YOY. This represented the largest drop in two years. The lockdowns have hurt Chinese vehicle sales significantly, and now it appears as if the government is stepping in to bolster sales.
China also announced that it would halve the purchase tax on low-emission vehicles. These vehicles must have been sold between June and December of last year, have no more than nine seats and carry a price tag of $45,000 or less. The country estimated that these tax reductions would total 60 billion yuan, or about $9 billion.
Several individual Chinese car companies are also providing customers with incentives to help increase sales. These include insurance subsidies, attractive financing rates and an extension of loan payment deadlines.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.