The car trade-in policy that the market has been eagerly awaiting has finally been officially unveiled. The strength of the subsidy funds and the number of cars affected by this trade-in policy have both exceeded market expectations, and will have a strong driving effect on automobile sales in the next three quarters of this year.

Recently, seven departments including the Ministry of Commerce and the Ministry of Finance jointly issued the “Vehicle Trade-In Subsidy Implementation Rules”. As of December 31 this year, financial subsidies of 70,000 yuan and 10,000 yuan will be given to consumers who have scrapped fuel passenger cars with fuel standards of 3 or below, new energy passenger vehicles registered before April 30, 2018, and who purchase fuel passenger cars or new energy passenger vehicles with a displacement of 2.0 liters or less, respectively.

How big is the impact of the trade-in policy?

The Ministry of Commerce estimates that the number of vehicles that meet this scrap subsidy standard is as high as 8.25 million vehicles. Of these, 7.6 million are fuel vehicles and 650,000 are new energy vehicles.

Prior to the introduction of the automobile trade-in policy, automobile scrapping in China was through waste steel recycling channels, and the price of bicycle recycling ranged from 10,000 yuan to 20,000 yuan. Since the residual value of cars is too low, consumers are less willing to scrap them, and most choose to trade in the second-hand market.

Now, with the support of trade-in subsidies, the maximum scrapping income for older vehicles can reach about 12,000 yuan (subsidy+dismantling fee), which has been greatly enhanced. Combined with official car subsidies from local governments and car companies, it is already higher than the transaction amount for many used cars.

Take the 2011 Volkswagen Bora as an example. The price of a used car is already less than 0.85 thousand yuan, which is quite attractive to consumers who want to buy a car.

As scrapping subsidies increase, the number of old vehicles being scrapped will increase, which will boost sales in the new car market. The total retail sales volume of passenger cars in China in 2023 was 21.699 million units, and the number that met the current scrapping subsidy standards reached 38% of the car sales volume in 2023.

New energy vehicles benefit more

The current trade-in subsidy is stronger than the preferential strength of the previous policy, and is expected to trigger sales growth similar to that brought about by previous NEV subsidies and purchase tax concessions.

In terms of fuel vehicles, the previous three fuel vehicle purchase tax reduction policies provided a 5% discount. Based on the current average price of new cars of 140,000 yuan, the bicycle subsidy amount is 0.62 million yuan, which is lower than the subsidy amount of 70,000 yuan for fuel passenger vehicles.

However, the previous purchase tax relief targeted all consumers. The current trade-in policy targets car owners after being scrapped. The actual base figure is still lower than before, and the driving effect will be reduced.

In terms of NEVs, the last round of NEV subsidies in 2022 has been reduced to 0.48,000 yuan to 12,600 yuan, with an average subsidy of 0.87 million yuan, which is lower than the subsidy amount of 10,000 yuan for NEV trade-in.

The sales promotion effect brought about by the previous three purchase tax relief reached 10% to 15%.

Since the two subsidies are combined for new energy vehicles, consumers are more likely to buy the bill. Take Shanghai as an example. This year's automobile subsidy is 10,000 yuan for new energy vehicles and 0.2,800 yuan for fuel vehicles. The maximum subsidy amount for choosing to buy a new energy vehicle after scrapping will reach 20,000 yuan, far higher than the 0.98 million yuan for fuel vehicles.

Interestingly, the requirement for NEV scrapping is for NEV passenger vehicles to be registered before April 30, 2018. However, at this point in time, the sales volume of most domestic NEV companies is in a very early stage.

New energy vehicle companies such as Tesla, Xiaopeng, Ideal, and Nezha are all still at the level of not launching domestic models for sale, or selling less than 1,000 vehicles. Before 2018, most of BYD's new energy vehicle products were low-end products under 150,000 yuan. Most power batteries had a lifespan of 5-7 years, and now they have reached the stage of replacement and scrapping.

In 2023, the domestic passenger car market of 50,000 to 150,000 yuan will be an important market for consumers, with sales reaching 10.59 million vehicles, accounting for 48.8%. If old car owners actually replace their old vehicles, this market will still be the first choice for most consumers.

However, the 50,000-150,000 automobile market is BYD's main battleground, accounting for the highest overall share, so sales are most flexible, and it is expected that sales will increase significantly in the next three quarters of this year.

In summary, the subsidy strength of the current automobile trade-in policy has already surpassed the previous level of purchase tax relief and new energy vehicle subsidies. It is expected to stimulate the activity of the automobile market, release consumption potential, and form a replacement boom, thus comprehensively driving the level of automobile sales this year.

Editor/Jeffrey