The threshold for car tax reduction has been reshuffled, has BYD been hit again?

At the end of each year, China's new energy vehicle policies are a key focus that affects the market. The key policies mainly cover the subsidy policy for old scrapping/old-for-new replacement and the purchase tax reduction policy.

Among them, the purchase tax reduction for new energy vehicles does not involve regional differences, has a low understanding cost, and is most noticeable to users. According to the original tax reduction route plan, the reduction will be maintained from 2024 to 2025, but the reduction amount per vehicle will not exceed 30,000 yuan; starting in 2026, new energy vehicles will begin to be fully taxed, but at a reduced rate of 50%, which means a 10% vehicle value-added tax at the time of purchase.

The halving of the purchase tax is within expectations, but recent policy releases have also adjusted core indicators to raise the technical standards of models eligible for tax benefits. In addition to the decline in the purchase tax amount, the subsidy threshold is also being raised. The question arises,

$BYD COMPANY(01211.HK) will be closely watched for "price reduction" behavior and then hit again? Does the minimum pure electric range requirement benefit $CATL(03750.HK), or second-tier battery manufacturers? Will there be a big price cut sale in the fourth quarter?

Let's delve into the analysis:

I. From Tax Reduction to Halving, Is It Implemented as Expected?

The purchase tax reduction policy is directly related to consumers' car purchase costs. According to the policy at the end of 2023, eligible new energy vehicles will have their purchase tax halved starting in 2026.

"Finance and Taxation Industry and Information Technology Announcement [2023] No. 10" states: "For new energy vehicles purchased between January 1, 2024, and December 31, 2025, vehicle purchase tax is exempted, with the exemption amount for each new energy passenger vehicle not exceeding 30,000 yuan; for new energy vehicles purchased between January 1, 2026, and December 31, 2027, vehicle purchase tax is halved, with the tax reduction amount for each new energy passenger vehicle not exceeding 15,000 yuan."

The calculation method is: Subsidy amount (up to 15,000 yuan) = Total vehicle price and tax / 113% (13% is VAT) × (10% - 5%).

If this policy is not adjusted, new energy vehicles will be subject to purchase tax starting in 2026, which is entirely within expectations. Therefore, before the exit, a lot of new car purchase demand should be stimulated in the fourth quarter of this year.

As mentioned earlier, "eligible" means that the model must be included in the "New Energy Vehicle Tax Reduction Directory," and a relatively unexpected higher technical standard requirement was set for models that could enter the tax reduction directory a few days ago, and the 2026 tax reduction model directory was updated based on the new requirements.

II. How Does the Tax Reduction Policy Affect Consumers?

Overall, under the new policy, all new energy vehicles in 2026-2027 will need to pay purchase tax (halved, actual tax rate 5%), while models below 300,000 yuan are completely tax-free before the end of 2025. Specifically: a 100,000 yuan model will cost an additional 5,000 yuan, a 200,000 yuan model an additional 10,000 yuan, and models above 300,000 yuan a fixed additional 15,000 yuan. Overall, this is equivalent to a 3-5% increase in car purchase costs. For consumer groups planning to buy cars at the beginning of 2026, it is highly likely that a wave of concentrated purchases will be triggered at the end of the "full exemption" phase, i.e., the fourth quarter of 2025 (combined with the year-end promotion effect, the actual discount may be greater), causing a short-term demand pulse, and the demand being advanced may put pressure on car companies' performance in Q1 2026 (which is already a sales off-season).

By price range, the 50,000-150,000 yuan market is most affected: the price sensitivity of the sinking consumer group is extremely high, and some popular models may not be eligible for the 5% reduction (see below), and demand may shift to the second-hand market or be delayed.

For the 150,000-300,000 yuan price range (covering mainstream new forces such as Nio, XPeng, and Li Auto) and higher price segments, the impact of policy adjustments is relatively controllable, and the real test falls on the supply side of car companies.

The customer group in this price range has a certain tolerance for the potential cost increase of 5,000-15,000 yuan, and their car purchase decisions are more focused on core elements such as product strength, brand tone, and technical strength, with price weight having less impact than car owners below 150,000 yuan.

After carefully sorting out the policy details (see below), Dolphin Research found that the standard adjustment is almost uniformly applicable to all car companies in this price range—qualified manufacturers can enjoy a 5% preferential tax rate.

In this case, car companies face a similar dilemma: should they absorb the rising tax costs themselves to maintain terminal price stability, preserve market share and brand image, or pass some of the costs on to consumers?

Of course, in the short term, car companies will bear the impact of changes in vehicle purchase tax for orders placed before the end of the year and delivered after the new year. But in the long term, car companies with strong cost control capabilities and high vertical integration (such as Tesla) are more capable of digesting cost pressures; those with strong brand premium capabilities, such as Huawei and Xiaomi, can achieve indirect transfer through upward pricing of models; in addition, companies with high organizational efficiency and good expense rate control are also more resilient.

In the context of uniform policy, whoever can provide more cost-effective products will gain an advantage in this round of policy adjustments.

III. Adjustment of Technical Conditions for the Tax Reduction Directory: What Has Been Adjusted? What Is the Policy's Original Intent? Who Benefits and Who Loses?

A. Policy Purpose: Shift from Price Competition to Technology Competition

Let's take a closer look at the adjustments to product technical requirements by the Ministry of Industry and Information Technology and other three departments. Compared to changes in subsidy amounts, technical standards can better reveal policy intentions, and this time the intention is clear—to guide the industry from price competition to technology competition through threshold setting.

Next, Dolphin Research will delve into the changes in technical requirements for pure electric vehicles and plug-in hybrid vehicles (including extended-range) from a micro perspective.

Pure Electric Vehicles: Pure electric models that can enter the 2026 tax reduction directory must comply with the new national standard GB 36980.1—2025, which is a fundamental efficiency improvement requirement.

As shown in the figure, the new national standard (blue line) systematically adjusts the calculation method for energy consumption limits (EC_L), and its limit curve is overall lower than the requirements of the "New Energy Vehicle Product Technical Requirements" "Finance and Taxation Industry and Information Technology Announcement [2023] No. 32/Attachment" (yellow line).

This means that for almost all weight classes of vehicles, the "energy consumption limit" set by the new standard is much stricter than the "target value" (i.e., limit) of the old standard—vehicles of the same curb weight have significantly lower allowable energy consumption per 100 kilometers under the new standard. This indicates that the policy has set a more stringent entry threshold for vehicle energy efficiency performance, aiming to systematically improve the overall vehicle energy consumption management level.

Lightweight Small Car Market (Curb Weight Less Than 1100kg)

The most significant change in the new standard is the zero slope—the old standard had the highest slope in this range, giving small cars a large energy consumption elasticity space for weight gain.

The new policy completely cancels this "tolerance," no longer allowing small cars to exceed energy consumption limits due to weight gain. This means that the path for some small cars to rely on high slope "exemptions"—even if the body is heavy, the wind resistance is high, and the electronic control technology is backward—has been completely blocked.

Mainstream Passenger Car Market (Curb Weight Between 1100kg and 2510kg)

The new standard covers a wider weight range, with a slope between the "steep" and "gentle" of the old standard, encouraging lightweighting without excessively penalizing reasonable configuration upgrades. The most critical change is that the starting point (intercept) of the entire energy consumption curve has been significantly lowered. This is equivalent to setting a significantly higher technical entry threshold for all mainstream models.

This has a structural impact on the market, with pressure focused on hybrid vehicles: high-energy-consumption oil-to-electric models and old platforms will be forced to clear out—those models that simply retrofit fuel vehicle chassis with battery packs and lack dedicated electric platform optimization cannot meet energy consumption standards. On the other hand, car companies still selling such models will face significant impairment risks for related production lines, inventory, and even brand value.

High-End Luxury Car Market (Curb Weight Greater Than 2510kg)

The old standard had an upward slope in the heavy vehicle range, allowing even models over 3 tons to continue increasing energy consumption with weight. The new standard sets a clear energy consumption ceiling—19.1kWh/100km.

In terms of policy intent, Dolphin Research believes the government does not encourage car companies to create a "luxury feel" by indiscriminately piling on configurations (large screens, refrigerators, massage seats, etc.).

High-end electric vehicle brands must rely on top-notch technology—more efficient three-electric systems, better aerodynamic design, and lighter materials—to offset the energy consumption pressure brought by weight increase.

B. Pure Electric Passes, Hybrid Needs to Change

To more intuitively assess the actual impact of the new policy, Dolphin Research conducted individual assessments of pure electric models in production and on sale by multiple new energy car companies (if new and old models are sold simultaneously, the new model is selected) and compiled a list of models that can enter the "Tax Reduction Directory" effective in 2026 and beyond.

1) Pure Electric Cars: Most Pass Except for Geely's Geometry

The assessment results show that for pure electric vehicles, the tightening of the new tax exemption policy has a relatively controllable impact on most car companies. Among the more than 80 pure electric models from ten car company brands counted, the vast majority of models can meet the new standard requirements and smoothly enter the tax reduction directory. Only four models under Geely and one model under Leapmotor may not be eligible for the 2026 tax reduction directory, with a total of five models facing compliance risks.

This result indirectly confirms two points: First, after years of development, mainstream car companies have basically matured in energy efficiency management technology for pure electric vehicles. Although the new standard is stricter, it is easy to reach with some effort; second, models that cannot meet the standard are mainly concentrated in specific product lines of individual car companies, likely based on old platforms or models with insufficient energy consumption optimization.

The information sorted above shows that the tightening of the new standard has little impact on pure electric vehicles overall, with problematic models mainly in the economic small car segment (priced at 50,000-100,000 yuan), such as Leapmotor T03 (exceeding the standard by nearly 13%) and Geometry E (exceeding the standard by nearly 5%), facing the risk of being eliminated due to excessive energy consumption.

These models mainly focus on cost-effectiveness and the mass market. To control costs, they often do not use lightweight materials, low wind resistance design, or efficient three-electric systems, and their energy consumption values exceed the upper limit corresponding to the vehicle weight.

For these price-sensitive volume models, losing the tax rate discount qualification is equivalent to being forced to increase prices by about 10% (5,000-10,000 yuan), which is almost a fatal blow in the fiercely competitive low-end market. The price disadvantage brought by energy efficiency differences under the new policy will directly translate into market share loss.

Further, the new national standard not only eliminates non-compliant models but also accelerates the clearing of old brands and platforms. Geely's Geometry series is a typical case: the brand was established in 2019, and its core models Geometry A and Geometry C are based on the FE platform, with its three-electric system efficiency, vehicle integration, and lightweight level having a generational gap compared to dedicated electric platforms after 2023 (such as the SEA Haohan architecture).

More critically, the Geometry brand has few new models launched, and the product line is seriously aging. In the context of four Geely models not being eligible for the 2026 tax reduction directory, most models of the Geometry brand may not meet the standard. This policy is essentially the "asset clearing button" for Geely's Geometry brand.

2) Hybrid: BYD Faces Challenges

First, let's take a look at the new policy adjustments, with key adjustments focusing on 1) energy consumption and 2) different energy consumption (including electricity and fuel consumption) for different vehicle weights.

a. The new standard raises the pure electric range of new energy vehicles from 43 kilometers to 100 kilometers, an increase of 132%, which is the most core variable in this policy adjustment.

In terms of usage scenarios, a 100-kilometer pure electric range can basically cover the daily commuting needs of urban users. This adjustment redefines PHEVs from "frequent oil-electric switching transition products" to "daily pure electric, long-distance oil" product forms, forming a clearer differentiated competition with pure electric vehicles.

In addition, in terms of policy intent, in the low-price segment, plug-in hybrid models are largely used for policy arbitrage to obtain licenses and subsidies, rather than truly driven by energy conservation and emission reduction. The substantial increase in the pure electric range threshold is expected to effectively clear out backward production capacity with insufficient technical reserves.

b. The policy adjustment for PHEV fuel consumption when the battery is depleted is a typical "loose on the surface, tight in reality" approach. On the surface, the assessment coefficient is relaxed from 60%/65% to 70%/75%, but the policy quietly switches the reference benchmark from the old national standard to the stricter new national standard—the new standard in the main market range is 10-15% lower than the old standard. After offsetting the relaxation and tightening, the actual requirements are stricter.

To assess the net effect of the two variables combined, Dolphin Research introduces the actual change coefficient as a comprehensive evaluation indicator (gray solid line in the chart), calculated as follows:

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When this coefficient is less than 1.0, it means the new policy requirements are stricter than the old regulations; equal to 1.0 means they are the same; greater than 1.0 means they are relaxed. The gray dashed line in the chart marks the 1.0 baseline as a reference for judging policy tightness. Specifically:

Lightweight Range (750-1100kg): The policy severely penalizes each kilogram of weight gain for small PHEVs (the actual change coefficient continues to decline from 1.0 to 0.96).

The key contradiction is: to meet the 100km pure electric range, small cars need to add 10-15kWh of batteries (weight gain of 100-150kg), but the weight increase instead leads to higher fuel consumption when the battery is depleted, exceeding the limit—meeting A indicator makes B indicator harder to meet.

The policy intent is clear: to curb low-tech content products of "small cars + small batteries + inefficient hybrids," forcing lightweight cars to achieve real breakthroughs in hybrid efficiency, simply piling on batteries won't work because adding batteries increases weight.

Main Market Range (1100-2510kg): The actual change coefficient stabilizes around 0.96 and relaxes moderately with weight. This range covers the PHEV versions of most A/B-class sedans and compact SUVs, which are the core target market for policy regulation—maintaining moderate pressure without excessively impacting sales.

Heavyweight Range (>2510kg): The actual change coefficient further drops to 0.95 and remains stable. The policy adopts the strictest strategy for large luxury PHEVs, not tolerating heavy vehicles gaining more lenient limits through weight gain, with the highest technical requirements.

c. The "loose on the surface, tight in reality" logic tightens even more on PHEV pure electric energy consumption (ECL). The assessment coefficient is relaxed from 125%/130% to 140%/145% on the surface, but the essence is the reference benchmark switching from the old national standard (GB 19578-2021) to the stricter new national standard (GB 19578-2024). The combined tightening is far greater than the fuel consumption when the battery is depleted, and shows a clear differentiation feature:

Lightweight Range (750-1100kg): Most affected, need to control weight while increasing range. The actual change coefficient continues to decline to 0.92, with the tightening range being twice that of fuel consumption when the battery is depleted (4%). The policy signal is clear, small PHEVs must achieve breakthroughs in efficient electric drive systems. Combined with the previous analysis of fuel consumption when the battery is depleted, the technical breakthrough path for lightweight cars is clear—efficient electric drive + lightweight design + efficient hybrid system, all three are indispensable.

Main Market Range (1100-2510kg): Not much impact. The actual change coefficient slightly tightens in the 1100-1600kg range, but relaxes in the 1600-2510kg range with an upward slope (the turning point mainly due to discontinuity in the segmented range of the new and old standards). Overall, the policy is relatively friendly to the mainstream PHEV market, with mature technology models having ample engineering optimization space.

Heavyweight Market (>2510kg): Significant impact. The actual change coefficient plummets to 0.84, with a tightening range of 16%—far exceeding other price ranges. The core reason is that under the old standard, heavy vehicles could gain more lenient limits through weight gain, and the new standard breaks the "heavier, more lenient" convention by introducing a ceiling mechanism. The policy hopes luxury PHEVs must invest real money in improving electric drive systems.

Combining the analysis of (a)-(c), Dolphin Research believes the new generation of PHEV policies systematically redefines PHEVs from "oil-electric hybrid transition products" to "quasi-pure electric vehicles with electricity as the main and oil as the auxiliary" through the combination of "pure electric range +132%, pure electric energy consumption tightening 15%, fuel consumption when the battery is depleted tightening 5%".

To compile a list of models that can enter the "Tax Reduction Directory" effective in 2026 and beyond, Dolphin Research conducted compliance assessments of PHEV models on sale by covered car companies (a total of more than 40 models) and found the impact from the perspective of individual car companies:

As it stands, BYD and Geely may be most affected by the new tax exemption policy. The entire low-end version of Geely Galaxy and most low-end versions of BYD Dynasty/Ocean series lose the 5% purchase tax reduction qualification due to failure to meet the new standard.

However, Dolphin Research has different attitudes towards the impact on these two car companies.

- BYD: More for the Same Price

For BYD, low-end models occupy an important sales share, and once they fail to meet the standard, the impact is significant. However, BYD quickly came up with a countermeasure, launching the "128km pure electric range version Qin Plus DM-i model" with more for the same price (priced at 79,800 yuan) in September this year, and the 55km pure electric range version launched in February is expected to accelerate clearance under the "10,000 yuan limited-time discount," avoiding higher inventory impairment losses in 2026.

From the currently announced October model pipeline, the entry-level version of the soon-to-be-released Song L DM-i also directly raises the pure electric range to 130km (CLTC). Dolphin Research believes that BYD is fully capable of replicating this strategy and adopting a similar "new version maintains original price + old version limited-time price reduction" strategy, clearing low-range inventory while quickly launching upgraded models that meet the new standard, relying on the cost advantage of self-supplied blade batteries.

In terms of sustainability, assuming this strategy is fully applied: the gross profit per vehicle after limited-time subsidies for old models drops to 23,000 yuan, and the gross profit for the new 128km version is 28,000 yuan due to an increase in battery costs of about 5,000 yuan (625 yuan/kWh*8kWh), with the overall gross profit margin of affected models dropping to 11.7%, but still far above the industry breakeven line (5-8%).

Furthermore, the strategy has a clear exit mechanism: the gross profit margin returns to 18% after the limited-time subsidy ends; after the new policy takes effect in January 2026, low-range models completely lose the tax reduction qualification, and BYD can restore normal pricing without causing user backlash.

It is worth mentioning that from the current market information, the new Song Pro retains the 75km pure electric range version, meaning that this version will lose the purchase tax reduction qualification after the new policy is implemented in January 2026. Considering BYD's fast model iteration speed (according to historical main model statistics, an average iteration every 7 months), its launch price is likely to maintain the original price for initial distribution. After the policy takes effect in early 2026, BYD can provide limited-time subsidies to offset the price impact of the purchase tax increase (nearly 6,000 yuan) on consumers, while accelerating inventory clearance and launching upgraded versions that meet the new standard in mid-2026.

- Geely: More Range = More Cost, Gross Profit Margin May Be Under Pressure

Overall, among all non-compliant models, only Leopard 5 fails to meet the standard due to fuel consumption when the battery is depleted, while the rest are all stuck on pure electric range. In terms of energy consumption (EC_L) and fuel consumption (FC_L), BYD and Geely's various models have ample safety margins. More importantly, the high-end versions of most non-compliant models meet the standard (such as Qin Plus, Song Plus, Galaxy series, etc.), proving that the existing platform architecture already has the technical capability to support 100km+ range.

In other words, the core task of the two car companies is to add batteries, and they hardly need to worry about the chain reaction caused by weight gain. Theoretically, adding large batteries will trigger two opposite effects: the limit relaxes with weight gain vs. actual consumption increases with weight gain.

But the chart data shows that the high-end versions of the same model, despite having larger batteries and being heavier, have lower fuel consumption values/FC_L (thicker safety margins), and the energy consumption values/EC_L only increase by an average of 15% (relative to the 40% safety margin, it is more than sufficient).

This proves that their hybrid systems and energy consumption management are already efficient enough. Due to the high capital investment in the early stage, the technical reserves have been accumulated, and the existing platform does not need platform-level reconstruction, only the battery capacity needs to be increased on the existing basis to meet the standard—this is the dividend period of previous technical investment.

However, to increase the range, the new models may need to increase the single battery capacity from the current 7-8 degrees to about 15 degrees to meet the minimum pure electric range of 100 kilometers, with the battery cost increase of about 5,000 yuan.

For Geely, Dolphin Research has previously pointed out in the analysis of Geely's financial report that the Galaxy series and Xingyuan are strategic focuses for Geely's new energy transformation. However, Geely's current new energy vehicle gross profit margin is relatively weak, and replicating BYD's strategy would significantly erode Geely's car sales gross profit.

Since the Galaxy series relies on external battery purchases (procurement cost is about 750-800 yuan/kWh, mainly from CALB, which is more than 30% higher than BYD's self-supplied blade battery cost of 625 yuan/kWh), the cost increase of switching to larger batteries is about 13,000-15,000 yuan, significantly higher than BYD's 5,000 yuan.

In addition, referring to BYD's clearance of old inventory through subsidies, the single vehicle gross profit margin is even more affected. However, Dolphin Research still believes that Geely's response space may be larger than it appears on the surface, and it may not be necessary to refer to BYD's strategy. Since the Galaxy series mainly follows a 'mid-to-high-end configuration' sales structure (low-end mainly serves as a 'price anchor' rather than a volume tool), the non-compliance of low-end models has a relatively limited direct impact on its actual sales.

Dolphin Research believes that adopting a 'directly stop production of low-end + mid-end price reduction as the new entry version' strategy may also be acceptable for Geely, since cost control is difficult to win, reasonable pricing strategies and model configurations can improve Geely Galaxy's situation. The key observation indicator is the change in the sales structure of the Galaxy series in the first half of 2026: if the mid-end models can smoothly take over the lost share of the low-end, it proves the strategy is effective; otherwise, further adjustments may be needed.

In terms of the industry, in the short term, it will inevitably intensify a wave of inventory clearance by car companies, while demand will be more vigorous due to the exit of purchase tax exemption, resulting in a super-hot fourth-quarter car sales market.

In this summary situation, Dolphin Research suggests paying attention to companies that are less affected by policy tightening and whose new products have actual price reductions driving incremental sales, such as Nio.

On the other hand, car companies positioned with mass-market models will face increased costs after raising the range, weakening competition with fuel vehicles. In this process, second-tier car companies may be more vulnerable and are likely to be cleared out.

IV. How Does It Affect the Battery Industry?

Based on the analysis above, the impact of the tax reduction policy adjustment mainly falls on the increase in the pure electric range requirement for PHEVs. The intuitive logic of "low-end PHEV upgrade → small battery replaced with large battery → benefiting second-tier battery manufacturers with incremental sales" is not reliable.

Taking Geely Galaxy as an example, the low-end versions of A7 and Xingyao 8 and the entire line of Xingjian 7 cooperate with second-tier manufacturers, while the mid-to-high-end versions are strategic partners of Contemporary Amperex Technology Co., Limited. As mentioned earlier, if Geely chooses to stop low-end production, the market share of second-tier battery manufacturers will be further eroded.

Looking at second-tier car companies with insufficient technical reserves, the challenges of the new policy are far more than just "replacing batteries"—larger battery packs mean heavier vehicles, requiring re-optimization of energy consumption management, electric drive systems, and thermal management systems. Facing stricter technical standards, these car companies basically face three paths: investing heavily in R&D upgrades (but sales scale is not enough to dilute costs); raising prices by 8,000-10,000 yuan to cover battery costs (but will weaken already weak price competitiveness); or directly shrinking the PHEV product line.

Once second-tier car companies choose to shrink, second-tier manufacturers such as CALB and Sunwoda supplying batteries to them will directly face order loss—these orders will not be transferred to "upgraded large batteries."

Therefore, on the surface, this policy adjustment has a profound impact on the low-end series of BYD and Geely, but Dolphin Research has already pointed out above that they may have their own relatively economical response strategies. The real concern should be second-tier battery manufacturers and car companies with technology that needs iteration.

Finally, Contemporary Amperex Technology Co., Limited's financial report will be released next week, and Dolphin Research will conduct a more detailed discussion on Ning Wang and the battery industry, so stay tuned.