Analysts see auto sales zooming on 'super big bonus'

China has rolled out a slew of measures from halved purchase taxes to extra license plates to invigorate the vehicle market that was affected by COVID-19 outbreaks earlier this year - and analysts expect the steps to increase passenger vehicle sales by around 2 million units this year.

The purchase tax, which usually stands at 10 percent of a vehicle's sticker price, is cut to 5 percent for cars priced no more than 300,000 yuan ($45,000) and with 2.0-liter or smaller engines from Wednesday through the end of the year, said the Ministry of Finance in a statement on Tuesday.

Cui Dongshu, secretary-general of the China Passenger Car Association, called it "a super big bonus" for the auto industry.

The association estimated last month that retail sales would struggle to reach 19 million units this year after a 35.5 percent sales drop in April because of plant stoppages and dealership closures caused by COVID-19 outbreaks.

"Thanks to the new policy, we now expect retail sales to reach 21 million units this year, up 4 percent from 2021," said Cui.

Soochow Securities data showed that over 80 percent of gasoline-powered car models in the market are eligible for the tax cut, covering most volume brands, including Volkswagen, Geely and Great Wall Motors. New energy vehicles have been exempted from the purchase tax from the start of this year.

Some carmakers are seizing the moment to offer their own discounts as well. SAIC Volkswagen said those who buy some of its Volkswagen-branded models only pay 25 percent of the purchase tax, and the rest are free of any purchase tax at all.

While the central government has offered a favorable tax cut, over a dozen provinces and municipalities, including Hubei and Shandong, are offering subsidies to local car buyers, ranging from 5,000 yuan to up to 13,000 yuan.

Soochow Securities analysts said these stimuli at the central and local government level combined could increase gasoline-powered vehicle sales by around 1.9 million units this year.

China is also launching a campaign to promote new energy vehicles in its vast countryside. Soochow Securities analysts expect this campaign to drive up NEV sales by 250,000 units to 5.25 million units this year.

"We expect China's car market to see year-on-year growth of around 20 percent from June," they wrote to their clients.

Local authorities in some metropolises are issuing extra license plates. In May, Shenzhen and Guangzhou in South China's Guangdong province said they are offering another 20,000 and 30,000 license plates, respectively, this year on top of the previously set quota.

Late last month, the city government of Shanghai, which was disrupted by COVID-19 lockdowns in the past two months, said it will give out another 40,000 license plates for passenger vehicles this year.

Earlier this year, the State Council, China's Cabinet, said local governments shall not put in place new measures that curb vehicle purchases and those who have done so shall gradually scale up license plate quotas.