Chinese consumers are anticipating big increases in car prices next year, as the central government gradually phases out its incentives for vehicle purchases. This could result in a surge in car sales amid eased competition for automakers through the end of this year, a UBS analyst said on Tuesday.

“2025 will be the last year electric vehicles could receive tax breaks on purchases and people’s perceptions of future price moves could boost sales to a whole new level,” Paul Gong, head of China auto research at UBS, told reporters in Shanghai (our translation). China’s Ministry of Finance has previously announced that new energy vehicles (NEVs), including all-electrics and plug-in hybrids, purchased in 2024 and 2025 will be exempted from purchase tax, Reuters reported. The exemption will be halved and capped at RMB 15,000 ($2,046), or 5%, from its original 10%, for those made in 2026 and 2027.

Having said that, international automakers and younger EV startups will continue to face significant competitive pressure from a range of established Chinese competitors in the early stages of this year, due to an excess of supply over demand before and after the forthcoming Lunar New Year holiday, Gong said. The comments come as major luxury carmakers reported a slump in 2024 in the world’s largest auto market. Sales of BMW and Audi fell 13.4% and 10.9% year-on-year, while the figure for Porsche plunged 28% from a year ago to around 56,000 units.

China’s significant stimulus package to boost car consumption could be another bullish factor for 2025, which is “more generous than expected” and reflects Beijing’s commitment to boosting the economy, according to Gong. The central government on Jan. 8 announced it will continue to subsidize replacements of old cars as part of a larger consumer trade-in scheme for home appliances, autos, and other goods. Local buyers who trade in old vehicles and buy new ones throughout this year will be given a one-time subsidy of as much as RMB 20,000.

Beijing said last April that it would offer buyers of additional gas-powered or green energy vehicles subsidies of up to RMB 7,000 or RMB 10,000 respectively. This was followed by an increase to RMB 15,000 and RMB 20,000 starting last August. The stimulus package for 2025 would be bigger than last year’s measures, Gong added, which UBS expects to have facilitated additional sales of 2 million cars in 2024.

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