Consumption tax threshold reduced to 900,000 yuan: What Changes Will the Super Luxury Car Market Experience?

On July 17, the Ministry of Finance and the State Taxation Administration issued the "Announcement on Adjusting the Consumption Tax Policy for Ultra-Luxury Automobiles" (referred to as the "Announcement"). After the adjustment, the scope of consumption tax for ultra-luxury automobiles is defined as "passenger cars and light and medium-sized commercial passenger vehicles with a retail price of 900,000 yuan (excluding value-added tax) and above, regardless of power type (including pure electric, fuel cell, and other power types)." This policy will be implemented starting from July 20.

Is the pricing strategy of car manufacturers facing a major test?

According to Xinhua Finance, a notification released in 2016 indicated that the tax category for "ultra-luxury automobiles" applies to "passenger vehicles and light and medium-sized commercial passenger vehicles with a retail price of 1.3 million yuan (excluding value-added tax) and above per vehicle."

Previously, the "luxury car consumption tax is levied starting from 1.3 million yuan," which means it is imposed on invoices priced at 1.469 million yuan and above. After lowering the threshold, it will be levied on invoices priced at 1.017 million yuan and above.

This means that new cars originally priced between 900,000 and 1.3 million yuan, with invoice prices ranging from 1,017,000 to 1,469,000 yuan, will be subject to a 10% luxury car consumption tax after the policy takes effect on July 20.

In other words, the models originally priced between 900,000 and 1,300,000 yuan will see a significant increase in purchase costs after the policy is implemented.

In this regard, industry insiders have stated that models such as the Mercedes-Benz S480, Land Rover Range Rover Vogue, and the base versions of Porsche Cayenne/ Panamera, which originally set prices to strictly adhere to price thresholds, have now been directly impacted.

According to Xinhua Finance reports, in the market for new cars priced above 1.017 million yuan including tax, by brand classification, Mercedes-Benz holds a 48% market share with sales of 16,000 units; Land Rover occupies 23% of the market share with sales of 8,500 units; Porsche has an 18% share with sales of 6,800 units; Lexus accounts for 8% with sales of 3,000 units; and Bentley holds 3% of the market with sales of 1,100 units.

Image source: Mercedes-Benz Weibo

In addition, among domestic luxury cars, high-end models such as BYD Yangwang and Zun Jie S800 will also be affected, and the relevant car companies may need to adjust their pricing.

For domestic luxury car brands, this is both a challenge and an opportunity. On one hand, these models may need to reassess their pricing strategies to cope with the cost increases brought about by consumption taxes. If they choose to raise prices, it may affect their appeal among price-sensitive consumers; if they do not raise prices, they will need to maintain profits through methods such as optimizing their cost structure.

On the other hand, this also urges domestic luxury car brands to accelerate technology research and development and cost control, enhancing product added value and further improving brand competitiveness. Taking BYD as an example, with its strong foundation in new energy technology, if it can reasonably respond to the adjustment of consumption tax while maintaining product advantages, it will help it establish a foothold in the high-end market and promote the upward development of the brand.

The used car market is.

Additionally, it is worth noting that the new policy stipulates that no consumption tax will be levied on taxpayers selling used ultra-luxury cars, which undoubtedly provides a strong boost to the used car trade.

For used car dealers, this will reduce the circulation costs of vehicles, improve the cost-performance ratio of the vehicles, and attract more consumers to choose to purchase second-hand ultra-luxury cars. For consumers who have a demand for ultra-luxury cars but have a limited budget, the second-hand car market will become an important option for them.

In addition, the activity in the second-hand ultra-luxury car market will also have a certain spillover effect on the new car market. After experiencing second-hand ultra-luxury cars, consumers may develop a higher level of brand recognition, which could lead them to choose to purchase new cars in the future when they have the means, creating a positive cycle that promotes the healthy development of the entire ultra-luxury car market.

In February this year, media reports from the China Automobile Dealers Association revealed that the cumulative transaction volume of second-hand cars in 2024 is expected to reach 19.6142 million units, a year-on-year increase of 6.52%, with a cumulative transaction amount of 1,285.205 billion yuan.

From the perspective of the segmented market, in 2024, the cumulative transaction volume of basic passenger cars in the second-hand market reached 11.3094 million units, a year-on-year increase of 3.79%. The transaction volume of second-hand SUVs in 2024 totaled 2.6409 million units, a year-on-year increase of 11.04%. The transaction volume of second-hand MPVs in 2024 was 1.2498 million units, a year-on-year increase of 9.50%. The transaction volume of crossover passenger cars in 2024 reached 474,000 units, a year-on-year increase of 31.40%. In terms of commercial vehicles, the second-hand transaction volume of cargo vehicles in 2024 was 1.5776 million units, a year-on-year increase of 5.37%, while the transaction volume of second-hand buses was 1.0864 million units, a year-on-year increase of 1.28%.

In terms of the used new energy vehicles, the total transactions of new energy used cars nationwide in 2024 reached 1.1285 million units, a year-on-year increase of 47.9%.

Overall, the adjustment of the consumption tax policy for ultra-luxury cars is an important measure in the context of the automotive industry's transition to electrification and the upgrading of consumption structures. Although it will bring certain shocks to the ultra-luxury car market in the short term, in the long run, it is beneficial for promoting industrial upgrading, guiding reasonable consumption, and facilitating the sustainable development of the automotive market. Both car manufacturers and consumers need to actively adapt to this policy change and seek opportunities in the new market environment.