Chinese Electric Cars May Say Goodbye to 13% Export Tax Rebate

Recently, China's automotive exports may be about to undergo a significant change.

 

On September 24, Citi cited CPCA Secretary-General Cui Dongshu in a research report, stating that China may gradually cancel the current 13% VAT export tax refund for new energy vehicles.

 

According to expectations relayed by Citi, this process may involve the following steps: first reducing from 13% to 9%, then to 5%, and finally exiting completely. The first step may begin in mid-2027, with the whole process lasting about two years.

 

It should be noted that the Ministry of Finance and the State Taxation Administration have not yet officially announced new policies regarding passenger vehicles, so the specific timing and scope cannot be concluded yet.

 

 

However, there are already signs of similar adjustments: In January this year, the Ministry of Finance and the State Taxation Administration announced the cancellation of export tax refunds for photovoltaic products, while the refund rate for battery products was reduced from 9% to 6%, and will be completely cancelled starting from January 1, 2027.

 

When the market's focus shifts from derivative industries to the cars themselves, we first need to understand: What is the concept of a 13% export tax refund?

 

Generally speaking, car sales require payment of 13% VAT. However, for a car destined for export, its domestic production involves procurement of batteries, chips, steel, and other parts which have already borne the VAT. Therefore, by convention, after the car is exported, its eligible tax burden can be refunded or offset according to the export tax refund system.

 

If the refund rate gradually drops to 0 in the future, car manufacturers will inevitably increase tax costs when exporting, so Chinese electric vehicle exports will definitely be affected by this.

 

For the treasury, reducing a refund also means less refund expenditure. An analysis by Reuters on October 6 mentioned that one of the backgrounds for China considering adjustments to relevant tax refund policies is to improve the government's financial situation.

 

Of course, one cannot directly treat the 13% as new revenue for the state treasury. How much tax a company can actually get refunded and how much net tax revenue increases after adjustment still depends on specific tax calculations and business conditions. However, the larger the export scale, the more significant the fiscal amount involved by this policy becomes.

 

 

In addition, reducing or cancelling VAT has another function: to cool down the price wars that have spread overseas.

 

In the past few years, Chinese car companies have rapidly opened up overseas markets with supply chain and cost advantages. If tax refunds gradually decrease, the space for companies to continue cutting prices significantly will also be constrained. On September 1, the Ministry of Commerce, Ministry of Industry and Information Technology, State Administration for Market Regulation and other three departments jointly issued the "Guidelines for Overseas Competition Behavior and Compliance Construction in the Automotive Industry", giving a reminder to car companies involved in fierce price wars.

 

Furthermore, against the backdrop of Europe constantly paying attention to Chinese car import prices and trade imbalances, cutting tax refunds can perfectly serve as a tool for China to handle automotive trade friction with Europe.

 

Reuters cited CLSA analyst Xiao Feng's calculation that a car produced in China and exported overseas, with a current net profit margin of about 10%, may have its profit margin further narrowed after losing export tax refunds.

 

 

This does not mean Chinese cars must be sold at higher prices overseas. In overseas markets, reasonable cost advantages remain a competitiveness. However, for those enterprises that purely rely on price-cutting to exchange for sales volume, this accounting may need to be recalculated in the future.

 

Of course, this does not mean Chinese electric vehicles will suddenly lose export competitiveness:

 

In August this year, China's passenger car exports reached 894,000 vehicles, a year-on-year increase of 77.5%; among them, new energy passenger car export growth rate reached 154.7%. In the first 8 months, China's passenger car export volume had even exceeded that of the whole year of 2025. Merely adding a VAT expense will not have a decisive effect on competitiveness.

 

Moreover, Chinese car companies are not waiting idly for policy changes. Taking BYD as an example, currently, the company has planned production in Thailand, Brazil, Uzbekistan, Indonesia, etc. The Hungary factory will also begin assembling cars in the fourth quarter of this year. According to Citi's statistics, BYD's announced overseas factories have a combined capacity close to 1 million units.

 

It is even preparing to continue increasing investment in Europe. BYD Europe Special Advisor Alfredo Altavilla stated in September this year that from a long-term perspective, BYD needs three complete vehicle assembly plants and one battery factory in Europe.

 

In Brazil, BYD's goal is no longer just "assembling Chinese cars in Brazil". In June this year, BYD Brazil Company stated its hope to increase the localization rate of cars produced in Brazil to 50% by the beginning of 2027.

Unlike BYD, which does everything itself, Geely has chosen the path of joint cooperation. In September this year, Geely and Renault announced they would add 319 million euros in investment in Brazil, continuing to expand their industrial cooperation locally.

 

These investments actually occurred before news of export tax refund adjustments emerged. For Chinese car companies that have already started globalizing, direct export from China was never the only option.

 

As the largest export destination, the EU has already added extra tariffs on pure electric cars produced in China, with BYD currently facing an additional tax rate of 17%. Brazil had also raised import car tariffs to 35% in July this year.

 

For the same car, is it more cost-effective to produce it in China, transport it thousands of miles to Europe and South America, while facing various restrictions such as transportation and tariffs, or to build factories locally in the exporting country, purchase locally, and sell locally — this accounting, every car company will calculate.

 

Of course, not all Chinese car companies have the ability to build factories overseas. For those companies with smaller scale, limited overseas brand influence, and high dependence on "China production, low-price export", after tax refunds decrease, they need to reconsider the pricing, cost, and profit of export models.

 

However, for enterprises that are already scaled up, with solid technology, brand, and overseas production capabilities, there are many more options available. Reuters' analysis suggests that companies like BYD and Geely can absorb some costs through price adjustments, brand and technology advantages, keeping overseas business profitable.

 

This may also lead to new division of labor in Chinese cars going overseas: some continue to export from China, some cars are produced directly overseas; mature markets rely more on brands, technology, and local manufacturing, while emerging markets can still leverage the cost advantages of the Chinese supply chain.

 

In 2026, China's automotive exports are expected to reach 12 million vehicles. Upon reaching such a scale, China's automotive overseas expansion should also change its calculation method.

 

In the past, we were used to looking at how many cars are loaded onto ships at Chinese ports in a year, and how much percentage China's car exports increased. But in the future, a BYD might roll off a production line in Hungary, a Geely sold in Brazil might have 90% of its parts from local production, a Chinese car company might even establish a complete system overseas from R&D, procurement to production and sales,

 

Statistically, these cars will not be counted as "China car exports", but they still belong to the part of China's automotive industry going global, Made by China, Made for World.

 

 

If the 13% export tax refund eventually exits the historical stage, of course, China's electric vehicle exports will be affected. Some enterprises need to recalculate costs, some car models need to be re-priced, and some cars originally exported from China may also gradually shift to overseas production.

 

However, China's automotive industry may have already reached, and should have already reached, a position where export tax refunds are no longer needed. The next step for China's automotive industry is, after policy dividends decrease, tariff barriers increase, and even gradually losing the path dependence of "Made in China, complete vehicle export", to still be able to make the overseas business booming.

 

After all, a truly global automotive industry should leave behind more than just export numbers. It should take root globally with technology, gain renown globally with brands, and make itself accessible with factories and channels all over the world, so that it can take root in different markets.

 

Editor's Comments

On that day, whether a car is produced in China, Hungary, or Brazil will no longer be as important as it is today. The important thing is that as soon as consumers touch the steering wheel, they will know that the underlying industry, brand, and technology all come from the world-leading Chinese automobiles.