China will reportedly cut auto taxes, auto stocks surge

A customer looks at a Buick Regal car at a General Motors auto dealership in Shanghai.Reuters/Aly Song

• Chinese regulators are considering a 50% tax cut on the nation’s auto tax, according to Bloomberg.
• The measure would apply to cars with engines no bigger than 1.6 liters.
• The tax cut would help revive China’s auto industry, which has been damaged by an ongoing trade war.
• Watch General Motors, Ford Motor, Daimler, Volkswagen and BMW trade live.

Auto stocks are gaining ground Monday after a report said China is considering cutting the tax levied on car purchases by half to revive its flagging automotive market.

The National Development and Reform Commission, China’s top economic-planning body, is proposing to cut the purchase tax to 5% from 10% on vehicles with engines no bigger than 1.6 liters, Bloomberg reported on Monday, citing people familiar with the matter.

The tax cut is aimed at lending support to China’s auto industry as the ongoing trade war with the US threatens to slow the Chinese economy and impact the demand for vehicles. 

The NDRC has submitted a plan but no decision has been made, Bloomberg’s source said.

“This news is very positive as it removes a large part of the negative sentiment towards the group, driven by China risk,” Arndt Ellinghorst, an analyst at Evercore ISI said in a note sent out to clients on Monday. “If China stimulus is confirmed, we expect Auto stocks to show strong positive momentum into year-end.”

As a result, shares of American and European automakers are rallying. Here is the scoreboard:

• General Motors (GM): +4.96%
• Ford Motor (F): +5.68%
• Daimler (DAI): +4.24%
• Volkswagen (VOW): +4.46%
• BMW (BMW): +3.52%

 

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