Chinese Automakers, It's Time to "Wean Off"

Author | Klein

Produced by | Roadside Coffee

Abstract: A globally leading new energy vehicle industry should not just earn a "pittance".

On October 12, 2026, there were two news items worth looking at together.

Morning: The 91st Paris Motor Show opened. Among approximately 60 vehicle exhibitors, 20 were Chinese brands, a full third, double the previous edition. AITO, Avatr, Li Auto, AION, 212, all visiting for the first time, the exhibition hall was lively.

At 5:09 PM, the Ministry of Finance and the State Taxation Administration announced that starting April 1, 2027, the VAT export refund rate for new energy vehicles will be reduced from 13% to 9%.

One set up a stage in Paris, one withdrew support in Beijing. These two events coinciding on the same day may not be anyone's arrangement, but putting them together reflects the most accurate situation of Chinese automakers going global right now: the stage is getting bigger, the way out is getting fewer.

Hidden Messages in the Announcement

The policy itself is not long, can be clarified in a few sentences.

Refund rate drops 4 percentage points, from 13% to 9%; only new energy is affected, the 13% for fuel passenger cars, commercial vehicles, and engineering machinery remains unchanged; a buffer of nearly six months is given, to be implemented only on April 1, 2027; based on the export date on the customs declaration form.

The last point means that there is likely to be a wave of export rush in the first quarter of next year. Automakers and dealers will concentrate customs declaration before the end of March, pushing the data very high, then it will drop back in the second quarter.

By then, if you see news of record exports in the first quarter, you must squeeze out this part of the "water".

What is truly worth pondering are these five words "only new energy". According to the consistent terminology of domestic financial and tax policies, new energy vehicles include pure electric, plug-in hybrid (including extended range) and fuel cell vehicles, meaning DM-i which BYD is currently promoting in Europe, and extended range of Li Auto and AITO, are all within the range of these 4 percentage points.

And fuel vehicles sent to Russia and the Middle East by automakers such as Chery, Great Wall, and Geely, continue to enjoy full tax refunds.

In fact, this story has been told for a while, and the capital market even began selling off automotive stocks early for this expectation. At the end of September, a Citi meeting minutes already revealed the script, stating that tax refund adjustments "will be led by new energy vehicles", and "it is expected that it is unlikely to apply to fuel passenger cars, commercial vehicles, or engineering machinery".

The announcement today almost follows this script, only the implementation time is three months earlier than rumors (rumors say the policy starts implementing from July 1, 2027).

Script Played Twice

Looking at this announcement alone makes it easy to underestimate it. Looking at it over a long time line, one will discover the consistent deep meaning of the policy.

In December 2024, the export refund rate for photovoltaics and lithium batteries dropped from 13% to 9%. This April, 249 photovoltaic products were directly zeroed out, batteries first dropped to 6%, and will be completely cancelled starting January 1, 2027.

Now, it's the turn of complete vehicles. From now on, the export tax refunds for photovoltaics, batteries, and complete vehicles, the "New Three", have all entered the decline channel.

The export side is retreating, and the domestic side is too. Starting this year, new energy vehicle purchase tax changed from exemption to half reduction, with a maximum reduction of 15,000 yuan per vehicle. In 2027, purchase tax is likely to be fully collected. This year's policy also cut into lithium battery consumption tax. Starting September 1, lithium primary batteries, lithium-ion batteries, and all-vanadium flow batteries were re-added to the consumption tax items, collected at 2% first, and will restore the 4% statutory tax rate starting September 1, 2027.

Domestically and internationally, financial and tax support are coming to an end.

The official explanation for the previous two adjustments is against "involution-style" competition, and this is indeed a common pain point of the "New Three" industry. Under involution, automotive industry profits continue to drop, many automakers treated exports as a "lifeline", but automakers spread "involution" to overseas markets in a very short time.

The "price war" of Chinese automakers in overseas markets has already started. Automakers use taxes refunded by the state to negotiate prices against each other overseas. The finance ministry is essentially paying for foreign consumers, and in the end, it only brings a letter of anti-subsidy investigation.

This accounting, no one is willing to calculate it again. So why is new energy targeted first? Because it is the main cause of trouble.

Shortly after Chinese pure electric vehicles were levied with anti-subsidy duties by the EU, plug-in hybrid cars and hybrid electric cars were also put on the negotiation table by the EU. On October 9, the EU just reached an agreement with the Chinese government that Chinese car exports to Europe over the next four years should be cut by more than half compared to the original forecast.

As for fuel vehicles, going overseas is to fight head-on with Japanese and South Korean traditional automakers in their own territory, it didn't invite encirclement, and there is no reason to add another blow, moreover fuel vehicles are experiencing a cliff-like shrinkage in the domestic market, at this time it is also necessary to protect them.

There is another reason that sounds not very nice but is very realistic. New energy has already accounted for more than 40% of car exports, the financial bulk of tax refund expenditures is pressed on it.

In a sense, this announcement is an official certification, the wings of new energy vehicles are deemed hard enough to "wean off".

How painful is 4 percentage points?

Simply do the math, the refund rate drops 4 points, equal to 40,000 less refunded per vehicle exported with an FOB price of 1 million yuan. Roughly calculated at an average export price of 150,000 yuan, one vehicle will refund about 6,000 yuan less.

What does 6,000 yuan mean? Just look at the financial reports of BYD and Chery, the two major exporters. BYD's net profit attributable to parent company for the first half year was 12.325 billion yuan, selling 1.8085 million vehicles, with a net profit per vehicle of about 6,800 yuan. Chery's first half year net profit attributable to parent company per vehicle was 6,719 yuan.

In other words, if this cut is swallowed entirely by the automakers, the export profit per vehicle for top enterprises will basically be zero.

Of course, not all will be swallowed. Automakers with brand and channel bargaining power will raise prices, especially on the European side where the anti-subsidy case follows the "price commitment for tariffs" route, which already requires Chinese cars to be sold at "higher prices". The reduction in tax refunds equals handing over a ready-made reason for price increase.

The ones who really feel the pain are two groups of people, small and medium players relying on low prices to grab market share, and parallel exports and zero-mile used car chains eating the tax refund price difference.

One cut down, the tail is cleared out, what is squeezed out is gray business. This might just be the effect the policy wants.

Localization Acceleration Again

In 2026, China's automotive export volume is expected to break through the 10 million unit mark, and besides the milestone of scale, this year will also be a key year for Chinese automakers' overseas localization layout.

Looking back at this year, multiple forces are pushing Chinese automakers to accelerate overseas market localization layout.

The EU just put a "four-year halving" framework on hybrid exports; Thailand tightly binds imported cars with local production obligations; the RMB appreciated against the US dollar by more than 4 percent in the first half of the year. Just BYD, Chery, SAIC, and Geely, the four companies' exchange loss total was over 9.4 billion yuan, BYD alone 4.7 billion; after domestic purchase tax was halved, the price war continues to overflow overseas; now, tax refunds take away another 4 points.

Let's not count the capacity bottlenecks of Ro-Ro ships, that's the story for another article.

The next phase of this business of complete vehicle exports almost only has one clear direction left — building factories overseas.

Local car production, there are no issues with export tax refunds, no exchange exposure, no touching import tariffs, and can bring jobs and tax revenue to the host country, transforming from "blockaded exporters" to "welcome investors".

The EU forces you to localize with walls, Thailand forces you to localize with ratios, the RMB forces you to localize with exchange losses, now the Ministry of Finance pushes you with tax refunds again.

Inside and outside the walls, the direction happens to be consistent.

Final Words

New energy vehicle export tax refunds of course will not stop at this point. Photovoltaics took less than a year and a half from 13% to 9% to 0. Batteries took one year from 9% to 6% to 0. Cars might take a bit longer, but never too long.

According to the prediction of CPCA Secretary-General Cui Dongshu, the reduction of complete vehicle export tax refunds will take two steps, from 13% to 9% to 5%, finally down to 0, the second step may land around mid-2029.

For automakers, a steady posture is to treat 9% as a transition, doing long-term overseas financial models based on "zero tax refund". As for the 13% for fuel vehicles, it is probation, not exemption.

Only after the tax refund safety net ends will the globalization of Chinese automakers truly begin. There is only one question left, which overseas factory will be able to complete proper layout before that day?