Preferential Policies Phasing Out: The Era of Equal Treatment for ICE and EVs Begins

From the gradual reduction of purchase tax exemptions, to the restoration of battery consumption tax, to the elimination of vehicle and vessel tax waivers, the tax preferential policies for new energy vehicles (NEVs) are being phased out in stages and with rhythm. As the “running blocks” of supportive policies are gradually removed, can NEVs—which have already achieved high penetration rates—truly run on their own?

In the long run, the orderly withdrawal of industrial support policies is an important sign that the NEV industry is maturing, and is more conducive to the industry's healthy and sustainable development. For automakers, as policy dividends fade and the era of extensive growth comes to an end, a genuine market-oriented test has just begun. The trend toward “equal treatment” between NEVs and traditional internal combustion engine (ICE) vehicles in taxation and other areas is becoming increasingly apparent, and the era of ICE-EV parity is opening.

Looking back at the development of China's NEV industry over the past decade, its rise was fundamentally driven by policy-fueled incremental expansion. Purchase tax exemptions, vehicle and vessel tax waivers, and consumption subsidies—this combination of policies served as “running blocks” on a track, giving the NEV industry a powerful starting boost that enabled it to rapidly gain consumer acceptance in its early stages, completing the leap from technology validation to large-scale popularization in just over a decade.

The results of industrial cultivation are fully evident. According to Ministry of Public Security statistics, as of the end of June 2026, the national NEV ownership reached 48.97 million units. Data from the China Automobile Dealers Association (CADA) Passenger Car Market Information Committee shows that in July this year, the retail penetration rate of NEVs among overall passenger vehicles in China reached 65.1%, up 11.6 percentage points year-on-year.

CADA Passenger Car Market Information Committee spokesperson Cui Dongshu told Securities Daily: “Today's NEV industry already possesses the scale and capability for self-sustaining development. Continuing to maintain the original policy tilt would not only yield diminishing marginal returns but could also make enterprises overly dependent on external support, weakening their endogenous drive for technology iteration, cost control, and experience refinement.”

After the policy dividend recedes, the NEV industry will face a genuine market test: with no more tax incentives as bonus points, every order can only be won by the product itself. Consumer focus will concentrate on core metrics such as range accuracy, energy efficiency, charging convenience, and intelligent scenario coverage, which will force enterprises to genuinely improve their capabilities.

This shift in competitive dynamics is forcing the industry to reshape its underlying competitive logic. Ji Xuehong, director of the Automotive Industry Innovation Research Center at North China University of Technology, told Securities Daily: “The past model of seeking subsidies, rushing to launch new products, and stacking parameters is gradually becoming ineffective. What replaces it is a comprehensive contest around foundational engineering capabilities such as energy management efficiency, whole-vehicle lightweighting, low-temperature adaptability, and durability reliability. A marginal improvement in electric drive efficiency or a slight reduction in thermal management energy consumption will ultimately translate into perceptible differences in users' daily experience. This is the true moat for NEVs in the era of ICE-EV parity.”

Zhang Xiang, visiting professor at Huanghe University of Science and Technology, told Securities Daily: “Under a unified market standard, only those enterprises that continuously invest in and accumulate technological advantages in key areas such as electric drive efficiency, battery safety, intelligent interaction, and chassis tuning can occupy favorable positions in competition. This process will gradually eliminate participants lacking core competitiveness, prompting the industry to transition from extensive growth to refined operations.”

Any industry maturing process goes through evolution from a policy support period, to a market-driven elimination period, and then to a stable development period. “The implementation of ICE-EV parity is precisely the critical node that compels the industry to proactively consolidate its advantages and transition from quantitative change to qualitative transformation,” Zhang further explained.

Currently, China has established a complete NEV industry chain with a massive user base, but industrial competition has never been about starting speed—it is about the endurance to keep moving forward. Without the running blocks, NEVs must find their own source of power to keep running.

The urgency of ICE-EV parity reform stems first from the real pressure on road maintenance funding. As NEV ownership approaches 50 million units, the traditional “oil-based tax” collection mechanism faces continued erosion of its tax base, and the road maintenance funding gap keeps widening. This national challenge first manifested in Hainan, which has the highest NEV penetration rate among provincial-level regions, making it the pioneer in mileage-based fee reform.

In 2024, data from the “Thoughts on Expressway Maintenance Period Charging Systems” published by the Highway Research Institute of the Ministry of Transport showed that by 2030, maintenance management funding needs will increase by more than 300 billion yuan. Meanwhile, the current annual funding gap for ordinary road maintenance nationwide is about 50%, leaving roughly 40% of ordinary roads in the predicament of “listed for maintenance but no money to maintain, should be repaired but no money to repair.” As road mileage increases, the road maintenance funding gap will continue to widen.

Hainan ranks first among provincial-level regions in NEV penetration. NEVs do not use fuel and therefore naturally do not pay the refined oil consumption tax that includes road maintenance fees, yet they equally enjoy road access rights. This creates a systemic unfairness of “using roads without paying,” and also causes road maintenance funding sources to face the risk of depletion. Hainan urgently needs to use technological means to establish a new transportation tax-and-fee system that covers all vehicles and charges fairly based on actual road usage.

Hainan has already begun exploring. In August 2021, the Ministry of Transport issued the “Opinions on Hainan Province's Pilot Work on Traffic Powerhouse Construction Including Island-Circle Tourist Highway Innovation,” approving in principle Hainan's pilot work on highway mileage fees and deepening investment and financing system reform. In July 2026, the Hainan Provincial Department of Transport proposed in the “Hainan Province '15th Five-Year' Comprehensive Transportation Plan” to improve and perfect the reform system for highway vehicle passage surcharges, differentiated rate systems, credit-based fee collection inspection systems, and to build operational management platforms.

A research report from Shenwan Hongyuan shows that at the standards-setting level, Jiaoxin Beidou (Hainan) Technology Co., Ltd. has completed the drafting of the “Highway Mileage Fee Charging System” and formed a draft for comments, which has been submitted to relevant government departments. This means the company's core technologies and practical experience in the Beidou free-flow domain are being translated into industry and national standards, forming strong standard barriers and first-mover advantages.

Multiple industry experts have envisioned that the specific future fee collection model will most likely not be a “one-size-fits-all” approach. A more probable direction is a combined scheme of “base mileage fee + environmental exemption”: pure electric vehicles receive a certain annual low-carbon mileage exemption, plug-in hybrid vehicles receive tiered exemptions based on actual emission levels, and ICE vehicles bear the full amount. Different cleanliness levels correspond to different shares of public environmental costs. How the exemption quota is determined, how the exemption gradient is divided, and whether a dynamic adjustment mechanism is introduced all await top-level design to be clarified gradually through pilots.

Market concerns are equally noteworthy. For consumers, the most direct concern is rising vehicle usage costs. One of the core attractions of NEVs compared to ICE vehicles is that daily use is cheaper. Once tax alignment and mileage-based charging are fully implemented, this advantage will be significantly weakened. For enterprises, rising usage costs mean that purchase intentions may decline accordingly, which in turn affects the growth pace of the entire industry.

It is precisely in consideration of these practical factors that “tiered piloting, commercial operations first, and gradual promotion” has become the pragmatic choice of current policy. The general direction of reform is clear, but the pace and intensity of implementation must balance consumer affordability and enterprise development expectations, leaving buffer space between policy withdrawal and market growth, rather than a one-cut approach.

The ultimate form of ICE-EV parity is an industry steady state where multiple powertrain routes each find their proper place and coexist complementarily. Different powertrain routes will return to their respective most suitable scenarios, rather than consuming each other on a single track.

The core value of ICE vehicles lies in certainty—the freedom to depart at any time, reliability in extreme environments, and the convenience of refueling in three minutes. These are the hard capabilities accumulated over a century of mechanical industry, precisely matching real scenarios such as long-distance transport, extreme weather, and areas without charging infrastructure coverage.

The comparative advantages of NEVs are concentrated in urban commuting and digital experience. Electrification and intelligence are deeply coupled, with OTA (over-the-air) updates enabling continuous evolution of vehicle functions. Users discover that the seat heating logic has become more thoughtful and the voice assistant better understands them—these little surprises. The vehicle continues to provide freshness and a sense of gain throughout its life cycle.

Furthermore, diverse technology routes such as methanol fuel and hydrogen fuel cells each correspond to different refueling conditions and usage scenarios, together constituting a sufficiently rich pool of options so that every type of vehicle usage need can find a matching solution.

When multiple powertrain forms establish footholds in their respective areas of strength, the industrial logic shifts from an either-or zero-sum game to a diverse ecosystem where each plays its role. “Consumers choose based on real usage scenarios, automakers determine their routes based on their own technological accumulation, and different routes need not substitute for each other or crush one another. True competitiveness is finding one's irreplaceable position under fair rules,” Zhang stated.

From this perspective, the historical significance of ICE-EV parity is self-evident—this is not the end of an era but the beginning of a new set of rules. For the first time, China's NEV industry is using “institutional withdrawal” to test market maturity. Withdrawing the visible hand at the right time allows the invisible hand to truly take effect. ICE-EV parity raises the curtain, dismantles the institutional barriers between traditional ICE vehicles and NEVs, and leaves institutional space for fair entry by future new technology routes such as hydrogen, methanol, and synthetic fuels.

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