China polishes a potent weapon for EU car wars

Geely Automobile Holdings

06/10/2026 03:44

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to change "fresh on board" to "free on board" in paragraph 3.
By Katrina Hamlin
HONG KONG, Oct 6 (Reuters Breakingviews) - China’s taxman could turn diplomat. Beijing is phasing out generous export tax rebates for batteries and solar products. If it extends that to electric vehicles, it could reduce tensions with Brussels.
Although an official statement has yet to materialise, analysts and industry insiders reckon such a change is imminent, not least because Beijing is also trying to shore up government finances. The current EV rebate could wind down as soon as next year, Cui Dongshu, secretary general of the China Passenger Car Association, told Citi analysts last month. That would shrink carmakers’ margins but bigger brands like $102 billion BYD 002594.SZ can cope.
Today the refund represents 13% of each car’s “free on board” costs – expenses incurred through production up to the point where it is loaded onto a ship. A made-in-China model sold overseas can earn a 10% net margin, but without the rebate, that shrinks to almost nothing, or even a loss, CLSA analyst Xiao Feng estimates.
That makes the tax break a powerful bargaining chip for Beijing for when European Trade Commissioner Maroš Šefčovič visits China this week to discuss a yawning trade gap. Some Chinese EVs such as those made by SAIC Motor 600104.SS are already subject to tariffs of up to 45% but autos will be high on the agenda as exports to the bloc continue to rise.
Beijing can point to precedents to show scrapping rebates can reduce exports. China’s export volumes for solar power equipment tumbled 39% in August, the fourth month of decline since the sector’s export tax rebate was cancelled in April. Growth in battery export volumes slowed after its tax break was slashed to 6% from 9%, ahead of its full removal next year.
Chinese carmakers could offset some of the pain by raising prices. Larger companies like BYD and Geely Auto 0175.HK, which have built brands with cutting-edge technology like super-fast charging, aggressive marketing, and larger dealer networks, can probably coax consumers to pay more and ensure their overseas business remains profitable.
Tinkering with auto taxes may prove more palatable for China than alternatives such as setting export quotas. Whichever route it takes, subduing exports will ultimately fast-track domestic consolidation and reduction of overcapacity that drove carmakers abroad in the first place.
Follow Katrina Hamlin on Bluesky and LinkedIn.
     
CONTEXT NEWS
Cui Dongshu, secretary general of the China Passenger Car Association, expects China to gradually phase out its current 13% value-added tax export rebate for electric vehicles, with step-by-step reductions beginning as soon as next year, according to a note published by Citi on September 24, citing a meeting with Cui.
China ended its previous 9% VAT export rebates for photovoltaic products in April. Authorities also reduced VAT export rebates for batteries from 9% to 6% as of April, and the rebate will be scrapped entirely from January 1, 2027. The changes were announced in January by the Ministry of Finance and the State Taxation Administration.
Those government bodies have yet to issue an official statement regarding changes to the rebates for passenger vehicles.

(Editing by Una Galani; Production by Aditya Srivastav)
((For previous columns by the author, Reuters customers can click on HAMLIN/katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))