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The Focus on Electrification: Unprecedented Tax Incentives for Eco-Transport in Ukraine

The era of electric vehicles completely transforms the traditional cars industry in Ukraine and worldwide in the next ten years. President Volodymyr Zelenskyy has signed the laws providing tax benefits for manufacturers and importers of electric vehicles.

According to Bloomberg research, the worldwide sales of electric cars will rack up to 66 million units by 2040, two-thirds of passenger car sales. It is supported by a gradual drop in battery prices, growth in consumer demand for electric cars, and the need to reduce carbon dioxide emissions in major cities. Today the world market offers over 500 models of electric vehicles that can drive about 400 km without recharging (this number was about 170 km in 2012) 

There are 30 thousand electric cars registered in Ukraine and counting. For comparison, there were only 7012 electric cars in 2019. Odesa, Kyiv, Lviv, and Kharkiv regions account for 69% of the total car registrations. CEO of Ukrainian business process operator GT Invest Oleksii Prokhorenko talks about the electric vehicles sector, state support, and promising business ideas.

Government policy towards mobility 

Ukraine continues to consistently move toward sustainable mobility, strongly supporting the initiative on the government level. Not only the number of vehicles in the country is growing, but also e-charging stations are proliferating. Today, the charging stations are on all major highways connecting cities with millions of people. Charging a car is like drinking a cup of coffee the fast-charging feature takes up to 15 minutes and allows you to replenish the battery by 80%. By comparison, it took up to 8 hours to charge a car a few years ago. That was a big deal-breaker that deterred drivers from taking long trips and buying an EV. Five years ago, the number of electric cars was three times less. The demand for e-transportation is growing both among the people and at the state level, says Oleksii Prokhorenko.

The strong government initiative is the president of Ukraine Volodymyr Zelenskyy signed the laws to cancel the VAT for electric vehicles, effective August 12, 2021. 

The import of vehicles with electric motors in Ukraine and their selling in our country will be exempt from VAT until January 1, 2026. It also applies to vehicles with internal combustion engines (ICEs) that run on compressed or liquefied methane or biogas.

The import of goods necessary to establish or upgrade their manufacturing of vehicles with electric engines is also exempt from VAT and import duty till January 1, 2031. 

Tax exemptions (until December 31, 2035) are granted for the companies that produce electric vehicles, electric motors, lithium-ion (lithium polymer) batteries, and chargers. The exemptions are valid under the condition that they finance R&D of electric vehicles, create or re-equip their manufacturing facilities, expand the production output and apply cutting-edge technologies.

Opportunity to develop electric transportation in Ukraine: who will win?

Car manufacturers

The manufacturing of EVs requires much fewer components and labor than the production of conventional cars. The core principle of EVs resembles more a large computer than a car. For those in the auto industry, it means the opportunity to set up a profitable business with 2 to 3 times fewer employees. In 2025, Mercedes-Benz plans to introduce three new models of cars that run entirely on electricity. By the end of this decade, the company plans to switch to the production of EVs completely. By 2026 Mercedes expects to reduce investments into ICE and hybrid cars by 80%, which will end up in job cuts. Mercedes-Benz officials attribute this to the fact that EVs have fewer components and therefore require fewer workers.

Dealerships and the car maintenance market 

Maintenance periods for an electric car can range from 6 months to one year. It depends on the intensity of car use and the rate of wear of the parts. The operating life of gearboxes and electric motors is much higher than traditional cars. EVs break down much less often than ICEs but require frequent and specific maintenance. The internals of electric and hybrid cars are practically the same. They do not have any unusual units or blocks, but they arrange them differently. The power cables and the high-voltage batteries are always hidden from damage in an accident. Some of an ICE car’s units are powered with the high-voltage circuit, not the standard 12 volts. Full repair of all the units can be carried out only in authorized repair shops. However, the maintenance of an EV is much cheaper than ICE, and the result is more reliable.

Auto parts manufacturers

The working life of an EV up to a noticeable loss of battery capacity is about 800 thousand kilometers. It corresponds to about 35 years of average driver’s experience. Aluminum and stainless steel used for EV production do not corrode. The EV body as well as many of their auto parts like brakes, gearboxes, electric motors are much more reliable. Therefore, the business of manufacturing traditional auto parts will slump. However, there will be a demand to produce specific components for EVs like batteries and sensors.

Special attention is given to batteries because it is the heart of EVs. The market demand for batteries will only grow in the coming years. Therefore, the issue of recycling used batteries is becoming a top priority. Tesla Company has already claimed they can extract up to 92% of minerals from old batteries for reuse. Last year Tesla recovered 1,300 tons of nickel, 400 tons of copper, and 80 tons of cobalt from recycled batteries.

Charging stations 

Many gas stations have already installed e-chargers. The eco-friendly trend has boosted the installation of e-charging stations at parking lots, near cafes and restaurants, in underground parking lots, near offices, and modern residential complexes. In residential complexes and parking lots, the e-chargers are already the norm, not something unusual, as it was just five years ago. Today there is a demand to create fast charging points, allowing most popular electric cars to get charged in half an hour, sufficient to drive another 200 km. Over 6 thousand charging points for EVs and over 600 high-capacity charging stations have already been installed in Ukraine.

The trend for innovation and government support for large investors

Government incentives alongside the drop of electricity prices for households from 1.68 UAH/kW (6.2 USD cents) down to 1.44 UAH/kW (5.3 USD cents) promote EVs to conquer the market. Production and sales are becoming an increasingly successful business model for big investors. Besides, most big global brands are focused on rolling out electric cars to the market and converting the ICE cars we got used to into EVs. 

Ukraine can get the EVs, batteries, and components manufacturing off the ground due to our favorable geographical location, government support, and highly experienced and intellectual manpower. On top of that, our country has large deposits of rare-earth metals, including lithium, used in batteries production. Increased demand for green energy and EVs pushes the prices of metals to grow, believes Oleksii Prokhorenko.

The EVs and the manufacturing of their components require significant investments, but investors have guarantees, benefits, and ways to protect themselves. The Ukrainian parliament adopted the law to support investors. The companies investing over 30 million euros will get tax benefits, ten years of legal assistance from the government, and a guarantee for stability. Law #3760 defines the organizational, legal, and financial foundation for government support of investment projects with considerable investments. The investment must be at least 30 million euros. Also, the business must create at least 150 jobs with an average salary of 15% higher than that in the region. The amount of government support can constitute up to 30% of the investments in the project, and the launch period of the project should be less than five years.

The document provides several benefits for investors and establishes the status of the government agency with investment managers.

GT Invest Company is the largest operator in Ukraine and has a successful background in turning ideas into reality. We help with setting up a company. But the main objective of the company is to launch and manufacture products for our clients. We are responsible for the success of our clients. It is vital for us to create and implement the output of finished products in our country, summarizes Prokhorenko.

The EVs niche is one of the most promising in Ukraine today. It is a matter of strategic development both for this line of business and for our country.

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