Beijing: China is planning to extend a tax rebate on the purchase of new-energy vehicles after the incentive helped the country become the world’s biggest market for clean fuel automobiles, according to people with direct knowledge of the matter.

China’s government will continue to exempt the 10% purchase tax on new-energy vehicles at least through 2020, the people said, asking not to be identified discussing information that’s private. The current tax rebate policy is due to expire at end of this year. The ministry of finance didn’t immediately respond to a fax seeking comments.

Extending the tax rebate will give a fillip to China’s development of the NEV industry, a term used to refer to electric vehicles, plug-in hybrids and fuel-cell cars. The surge in demand for such vehicles in China has attracted billions of dollars of investments from companies such as Volkswagen AG and Ford Motor Co. while Tesla Inc. is considering setting up a factory in the Asian country. The government has recently announced a series of measures regarding manufacturing licenses and joint ventures that would allow foreign companies to set up solely owned assemblies in the $11 trillion economy.

Sales of NEVs surged 53% to 500,700 units last year and boosted the overall ownership of such vehicles in the country to over a million units. That’s more than triple the tally in 2015, according to the China Association of Automobile Manufacturers.

China’s government is working with regulators on setting a deadline for ending production and sales of internal-combustion vehicles, Xin Guobin, the vice minister of industry and information technology, said in September. The world’s second-biggest economy, which has vowed to cap its carbon emissions by 2030 and curb worsening air pollution, joined the UK and France in seeking a timetable for the elimination of vehicles using gasoline and diesel.

“China wants the number of NEVs to grow, and I’m sure they’ll take many additional steps if they’re not meeting their targets," said Yunshi Wang, director of the China Center for Energy and Transportation at the University of California, Davis. Eliminating the tax incentives abruptly would mostly hurt older manufacturers whose technology and manufacturing efficiency can’t match new entrants in China’s auto market, he said.

The government is also considering a resumption of new permits to make electric vehicles as early as the first half of 2018, a move that would clear the way for Ford and Tesla as well as a string of local manufacturers to start production, Bloomberg news reported last month, citing people with knowledge of the matter.

Since March 2016, China has handed out 15 EV licenses — local manufacturer Wanxiang Group and a Volkswagen joint venture were among the recipients — to foster competition for the predominantly state-owned auto industry. The ensuing rush saw makers of smart TVs to air conditioners drumming up plans to enter the auto industry.

On top of that, Ford and VW are among foreign carmakers that are preparing their China EV strategy to meet the country’s stricter emission and fuel-economy rules. Ford’s new venture with Anhui Zotye Automobile Co. plans to apply for a permit for a factory that can churn out 100,000 pure electric passenger vehicles every year.

Battery prices need to drop by more than half before EVs will be competitive with cars powered by internal-combustion engines, according to Bloomberg New Energy Finance. That’s likely to happen by 2026, when the cost for lithium-ion battery packs is projected to fall to about $100 per kilowatt hour. Bloomberg

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