According to Zhitong Finance APP, on November 22, Cui Dongshu stated that based on our passenger vehicle data analysis, 2025 will be a very small year for vehicle market consumption and industrial production, with immense stable growth pressure at the beginning of the year. The current good effect of the trade-in policy is leading to a strong year-end surge, but such a surge will bring greater pressure on consumption at the beginning of 2025. Therefore, a strong counteracting force is needed at the beginning of 2025 to offset the pressures of a small year in consumption. Thus, relying solely on the trade-in program will not be enough for stable growth in 2025 - tax incentives for vehicle purchases should also encourage first-time buyers.

From the perspective of tax equity, it should be said that stimulating the demand for first-time purchases, which have slightly weaker consumption capacity, is more necessary than stimulating the demand for trade-ins. This is because first-time car buyers generally have lower purchasing power and thus should receive more policy encouragement. Therefore, it is personally suggested to start the halving of vehicle purchase tax policy as early as January 1, 2025, to promote first-time buyers to purchase vehicles before the Spring Festival, which would have a better effect on driving economic stability in early 2025.

1. The continuation of the trade-in policy for autos next year can be anticipated.

On November 21, leaders from the Ministry of Commerce's Consumer Promotion Department stated that the national auto scrapping and updating application volume, as well as the national vehicle replacement application volume, have both exceeded 2 million, totaling over 4 million, with the daily average subsidy application amount remaining at a high level. The Ministry of Commerce stated that the next step involves continuing to implement the subsidy policies already issued and a series of supporting policies, scientifically evaluating this year's policy impact, and planning the continuation of the auto trade-in policy for next year in advance to stabilize market expectations, while continuously improving auto-related policies to facilitate the reliable and convenient trading of used cars.

The news about the research into the continuation of the trade-in policy for autos next year aligns with the strong wishes of many industry practitioners, representing significant bullish information for the development of the vehicle market and being of great importance for stabilizing the development of the vehicle market in 2025.

2. The U-shaped growth of the vehicle market in 2024.

In 2024, domestic retail of passenger vehicles shows a U-shaped growth trend, with a very strong start in January, hitting a low point in February, followed by a continuous rise from March to October. In October, the national narrow passenger vehicle retail reached 2.26 million units, an 11% year-on-year increase and a 7% month-on-month increase, marking positive growth for two consecutive months.

In 2023, the retail market for vehicles strengthened throughout the year, with sales from May to October exceeding those of March, which is a strong indicator of growth. However, in October of last year, sales were 0.43 million units more than March. This year, retail in January was also 0.35 million units higher than in March, and October showed an increase of 0.57 million units compared to March, indicating sustained strong growth from the beginning to the end of the year.

In October, national narrow passenger vehicle retail was 2.26 million units, a year-on-year increase of 11% and a month-on-month increase of 7%. Cumulatively, retail this year reached 17.84 million units, a year-on-year increase of 3%. Of this, conventional rbob gasoline vehicle retail in October was 1.07 million units, a year-on-year decrease of 16% and a month-on-month increase of 8%. From January to October, conventional rbob gasoline vehicle retail was 9.51 million units, down 16% year-on-year. In October, the retail penetration of electric vehicles was 53%.

Due to the early timing of the Spring Festival in 2023, the retail performance in January 2024 was very strong, mainly due to base factors. The pressure of a 3% decline from May to September was significant, but October showed strong growth, especially on a month-on-month basis. With the support of nearly a hundred billion in scrap renewal at the national level, there is still potential for a good recovery and growth in the future.

3. The vehicle market in 2025 will be a particularly small year.

In china, consumer spending in the auto market is primarily driven by the lunar calendar, meaning that the timing of the Spring Festival significantly impacts consumption, particularly noticeable in January. Therefore, the National Bureau of Statistics does not conduct separate analyses for January's consumption, but rather compiles comprehensive statistics for January and February. However, the actual impact of the Spring Festival factor is extremely substantial.

4. Analysis of the impact of the Spring Festival on production and consumption over the years.

The Spring Festival has a significant impact on the consumer side. Therefore, the auto market often exhibits a pattern of low performance before the festival and high performance afterward. The cumulative growth rate for the combined January-February period is generally relatively low. It should be noted that 2017 was a typical minor year; although retail sales reached a historic high, the overall performance in January and February was in a state of negative growth, only achieving positive growth at the end of the year. In 2018, although the entire auto market faced considerable growth pressure, the first half still showed good growth. The entirety of 2019 was in negative growth, partially due to disruptions caused by the Spring Festival, while both 2020 and 2023 were also affected by the Spring Festival.

In 2024, it can be said that the positive contributions of the Spring Festival factor to growth are considerable, leading to a U-shaped growth characteristic in 2024. 2025 is a minor year with an early Spring Festival; the dominant consumer power before the festival is released at the end of 2024, which does not contribute to growth at the start of 2025. Furthermore, even if the old-for-new policy continues after adjustment, its impact is likely to diminish rather than increase, still resulting in relatively sluggish performance.

The Spring Festival also has a significant impact on the production side. Looking at the growth rate of industrial added value as reported by the National Bureau of Statistics, it can be said that during exceptionally large years, the growth of industrial added value from January to February tends to be relatively strong, particularly in 2015, 2018, 2021, and 2024, all of which are considered exceptionally large years. During these years, the industrial added value saw notable growth in January and February, while March typically experiences a relatively low level.

In terms of exceptionally small years, the industrial added value in 2017, 2020, and 2023 was relatively low, indicating that consumer spending during minor years is low, and consequently, production was also not very strong.

Overall, in a normal year, both production and consumption are affected by the Spring Festival. Therefore, the growth pressure at the beginning of 2025 is significant, facing a situation where both production and consumption are at a low year. Promoting consumption in the automotive market is crucial for stimulating consumption during this low year.

In 2025, the vehicle purchase tax incentives should promote first-time car purchases.

Automotive consumption includes first purchases from users without cars and replacement purchases from existing car owners. First-time buyers typically have lower incomes or are young people buying their first car, thus lacking strong overall consumption capability and requiring policy support. In contrast, replacement purchases have stronger purchasing power, representing a consumption upgrade from poor to good for users who already have purchasing capacity.

Since the beginning of this year, under the active guidance of national policies, the automotive consumption market is undergoing unprecedented transformation and upgrade. In particular, the launch of the vehicle trade-in subsidy policy has not only greatly stimulated consumers' enthusiasm for car purchases but also played an important role in promoting the upgrade of the automotive industry and facilitating the eco-friendly concept and energy conservation.

According to data from the China International Statistical Yearbook published by the National Bureau of Statistics, in 2021, the ownership of passenger vehicles per thousand people in China was only 183 vehicles, which is relatively behind in the world.

From an international comparison view, considering the vehicle quantity indicators per kilometer of road capacity, China has only 55 vehicles per kilometer on average, while countries like Poland, Italy, and New Zealand have ownership levels of five to six hundred vehicles, with their road area maintaining close to a hundred vehicles per kilometer. The current state of Chinese roads does not significantly hinder the popularity of passenger vehicles. Promoting automotive consumption still presents better development space for the manufacturing industry.

Overall, the level of passenger vehicle popularity in the world is relatively weak. Compared to countries with dense populations and limited land such as Japan, South Korea, the United Kingdom, Israel, we still have significant room for improvement.

Countries like south korea and israel have almost double the number of passenger vehicles per capita compared to us, and the number of vehicles per kilometer of roadway is also significantly higher, leading to greater congestion pressure. Therefore, it can be determined that there is substantial room for improvement in the popularity of autos in china. Compared to real estate, the sales area, unit price, and sales scale have reached a relatively high level, coinciding with the peak consumption phase of 2014, marked by a high rate of marriages and births.

In comparison, passenger vehicle consumption remains the only unmet consumer product in the national consumer market, indicating there is significant room for growth in domestic consumption of our passenger vehicles. If preferential policies on vehicle purchase tax are introduced to support the popularity of autos, domestic demand in china will surely increase, allowing for a better offset against the pressures of a minor consumption year in 2025 and mitigating the external demand shortcomings brought about by the Trump administration.

6. Implementing vehicle purchase tax incentives on January 1, 2025, will yield the best results.

The auto market is currently booming in 2024, with strong release of replacement demand among certain consumer groups. In the last two months of the year, there's definitely a large explosion of replacement demand across various regions, leading to a strong sprint effect at the year-end. However, this may create pressure at the beginning of 2025 due to weak consumption. This pressure along with significant negative growth is undesirable, as the pressure during the minor consumption year at the start of 2025 is extremely heavy.

Thus, a strong counterforce must be present at the beginning of 2025 to offset the pressures of this minor consumption year. Therefore, it is personally suggested to introduce a policy that halves the vehicle purchase tax, to encourage first-time buyers, which would have a good stimulating effect on the rbob gasoline market before the new year, and also provide the same consumer policy stimuli to entry-level consumers and those who haven't yet enjoyed replacement demand.

From the perspective of tax fairness, it is more necessary to stimulate first-time purchase demand from consumers with lower purchasing power than to stimulate replacement demand. First-time vehicle buyers generally have less purchasing power and should receive greater policy encouragement.

If the policy to halve the vehicle purchase tax can be implemented at the start of 2025, it would align perfectly with the explosive purchasing period for first-time buyers before the Chinese New Year, and announcing this policy early could improve consumption of rbob gasoline and better offset the pressures from the external environment.