Huayuan Securities released a research report stating that from 2024 to the end of 2025, new energy vehicles (NEVs) will continue to enjoy exemption from purchase tax, with a cap of CNY 30,000 per NEV passenger car. However, from 2026 to 2027, the purchase tax subsidy will be halved, with a maximum reduction of CNY 15,000 per vehicle.

Despite NEV penetration exceeding 50%, the report expects a slight single-digit percentage growth in 2026, supported by improved product offerings, expanding distribution channels, and potential partial subsidy absorption by automakers or dealers. Potential upside may hinge on advancements in autonomous driving technology.

Key takeaways from Huayuan Securities: 1. **Subsidy Reduction & Technical Requirements**: - China’s NEV purchase tax exemption policy, introduced in August 2014, initially had no subsidy cap until 2023. - From 2026, the subsidy will be halved, and technical thresholds (e.g., plug-in hybrid electric vehicles’ pure-electric range) will rise from 43km (2021–2025) to 100km (2026–2027).

2. **Three Major Impacts of Subsidy Phase-Out**: - **Broad Coverage**: 90% of NEV buyers (mainly lower-priced models) will feel the impact, as the new tax burden could reach 5% of the vehicle price. - **Significant Reduction**: For 95% of NEV consumers, the 2026 subsidy cut will be the steepest historically, especially for sub-CNY 450,000 models. - **Structural Shifts**: ~40% of plug-in hybrids/range-extended EVs may lose subsidies due to stricter range requirements, disproportionately affecting budget models like BYD’s compact hybrids.

3. **Outlook for 2026 NEV Sales**: - While subsidy cuts may dampen demand, factors like automaker adjustments (e.g., model upgrades) and rural market expansion could sustain modest growth. - Projections: 2025 NEV registrations may hit 12.83 million (+19% YoY), slowing to ~9% growth in 2026 (EVs: +5%; PHEVs: +11%; EREVs: +28%). Autonomous driving breakthroughs (e.g., VLA tech) could drive upside.

**Investment Recommendations**: - **Premium Automakers** (less impacted by subsidy cuts): Focus on *Jianghuai Automobile* (600418.SH). - **Strong Product Pipelines**: *GEELY AUTO* (00175), *SAIC Motor* (600104.SH), *BAIC BluePark* (600733.SH), *LEAPMOTOR* (09863). - **Innovation-Driven Players**: *LI AUTO-W* (02015), *XPENG* (09868).

**Risks**: Policy delays, macroeconomic slowdowns, or slower-than-expected product launches.