China announced plans to support greater adoption of electric vehicles by exempting buyers of EV's from paying a sales tax. Vice Premier Ma Kai said that past incentives have not worked with sufficient speed, so the government will exempt "new-energy vehicles" from the 10% auto tax that buyers must pay. That includes plug-in hybrids, electric cars, and fuel-cell vehicles. He also announced that subsidies for electric vehicles will be reduced by a slower rate than previously planned. They will drop by 5% this year instead of 10%, and by an additional 10% in 2015 instead of the previously planned 20%. Shares of China's largest electric car manufacturer, BYD Co., rose after the announcement.
China has struggled to rein in its ghastly smog problem in major cities, and getting more electric vehicles on the road is an important part of the government's plan to reduce pollution. A recent World Bank report found that China's air pollution costs the country an estimated $300 billion per year in health damages and premature deaths. In March, China declared a "war on smog," indicating the greater urgency with which the government will try to tackle air pollution.
There are currently around 70,000 electric vehicles on Chinese roads, not even a rounding error in the world's largest car market. The government hopes to get 500,000 on the roads by 2015. But with low visibility for electric vehicles, the climb will be steep. Tesla is hoping to change that a bit by getting China's wealthy elite into their vehicles, in an effort to turn EVs into a luxury brand.
Aside from air pollution, China also has an economic and energy security motive for increasing the penetration of electric vehicles. China is now the world's largest importer of oil, a dependence that is expected to grow.