China is scaling back several tax incentives for electrified vehicles as the government faces increasing pressure to fund road infrastructure. The policy shift comes amid concerns that the growing share of electric and plug-in hybrid electric vehicles (PHEVs) could contribute to higher road maintenance costs and energy use.
According to a report by The People’s Daily, starting January 2027, China will impose an annual vehicle tax on PHEVs, range-extended electric vehicles (REEVs), and electric commercial vehicles, including trucks and buses. These vehicle categories had previously benefited from various incentives designed to accelerate the adoption of new energy vehicles (NEVs).
Pure electric cars used for private purposes, however, will remain exempt from the annual vehicle tax. At the same time, passenger electric vehicles, PHEVs, REEVs, and electric commercial vehicles will continue to qualify for a 50% reduction in vehicle purchase tax.
The policy change comes against the backdrop of challenges in financing China’s road infrastructure. Road maintenance has historically been supported in part by tax revenue from fuel consumption. As more drivers switch to vehicles that use little or no gasoline or diesel, revenue from these sources has declined, while infrastructure maintenance needs remain substantial.
Meanwhile, electrified vehicles are becoming heavier. Motor vehicle registration data cited by Zhou Wei of the China Automotive Strategy and Policy Research Center (CASPRC) show that the average curb weight of new energy passenger vehicles in China reached 1,939.3 kilograms between January and April 2026, approximately 27.5% higher than in 2020.
The increase is largely attributed to larger battery capacities and growing consumer demand for larger vehicles with longer driving ranges. This trend has raised additional concerns for policymakers.
Heavier vehicles can contribute to faster road deterioration, potentially increasing infrastructure maintenance costs. Greater vehicle weight can also exacerbate the severity of collisions, particularly for pedestrians, cyclists, and occupants of smaller vehicles.
In China, the term NEV encompasses battery electric vehicles (BEVs), PHEVs, and REEVs. BEVs rely entirely on electric power, while PHEVs and REEVs combine electric power with fuel-powered engines.
The tax adjustment signals a broader shift in China’s approach to electrified vehicles. While fiscal incentives have traditionally been used to encourage the adoption of cleaner vehicles, the government is now emphasizing fiscal sustainability and infrastructure maintenance costs.
The trend toward heavier electrified vehicles is not unique to China. Australia has also seen PHEV and REEV SUVs emerge in the heavier passenger-vehicle categories, partly because they combine conventional engines, electric motors, and large-capacity batteries. One example is the Denza B8, a PHEV SUV from BYD’s premium sub-brand, which weighs more than three tonnes. In Australia, only certain large pickup trucks from Ram and Chevrolet are heavier.
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