Impact Of China Waiving Lithium Battery Consuming Tax To Lithium Battery Industry

Hello, Yesa. On July 16, 2026, the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration of China jointly issued a notice stating that starting from September 1, 2026, the consumption tax on battery products such as lithium primary batteries and lithium-ion batteries, which were previously exempted from consumption tax, will be gradually resumed. This means that the policy of exempting the consumption tax on lithium batteries used in electric vehicles, which has been in place for over ten years, has officially come to an end. The price of lithium battery cells is approximately 0.35 yuan / Wh to 0.4 yuan / Wh. A 2% consumption tax rate corresponds to an impact of approximately 0.007 yuan / Wh to 0.008 yuan / Wh. A 2% to 4% tax rate fluctuation corresponds to an increase of 1.2 thousand yuan / ton to 2.5 thousand yuan / ton in the price of lithium carbonate. Please tell me what impact will bring to the lithium battery industry and how to respond correctly from industrial players? Thank you! Hello, I'm very glad to answer your question: The phased restoration of consumption tax for lithium batteries + multiple support policies withdrawal: Impact on domestic and international markets and enterprise response strategies. Let's first summarize the key points of the policy: Taxation on lithium battery consumption (levied at production/import stages) Starting from September 1, 2026: 2% consumption tax for lithium-ion batteries (for power, storage, and consumer lithium batteries); Starting from September 1, 2027: The tax rate is raised to 4% (reverting to the statutory base tax rate); Exemption period (until December 31, 2028): Sodium-ion batteries, solid-state batteries, and hydrogen fuel cells are exempt from consumption tax throughout the process.

2. Incorporation of similar exit mechanisms (core dual pressure)

Continuous reduction of export tax rebates: The export rebate rate for lithium battery value-added tax was 13% → 9% → 6% (starting from 2026.4), and the export tax rebate will be completely abolished from 2027.1.1;

The purchase subsidies for new energy vehicles have already been completely withdrawn, and local purchase subsidies are being gradually phased out;

Local electricity price subsidies and installation subsidies for energy storage projects are gradually tightened;

Anti-monopoly in the industry and regulation of low-price competition have become regular practices, and the prohibition of malicious internal competition and price-cutting has been implemented.

3. Cost quantification (battery cell: 0.35 - 0.4 yuan / Wh)

2% consumption tax: For each Wh, the cost increases by 0.007 - 0.008 yuan, equivalent to a 1.2 - 1.5 ten thousand yuan increase in the price per ton of lithium carbonate;

4% consumption tax: For each Wh, the cost increases by 0.014 - 0.016 yuan, equivalent to a 2.4 - 3 ten thousand yuan increase in the price per ton of lithium carbonate;

Single 60 kWh electric vehicle battery: 2% tax burden increases the cost of each vehicle by 420 - 480 yuan, 4% increases to 840 - 960 yuan.

Then let's take a look at the multi-dimensional impacts on the domestic lithium battery market:

4. In the short term (from July to August 2026, before the policy takes effect): Demand is in advance, lithium prices experience a temporary increase

Battery factories, vehicle manufacturers, and energy storage investors have concentrated on locking orders and stocking up, securing the prices of raw materials and battery purchases, and avoiding subsequent cost increases;

Short-term orders for upstream lithium carbonate, lithium salts, copper foil, and electrolytes have increased, and the prices of lithium raw materials are prone to experiencing a pulse-like rise;

Small and medium-sized production capacity is accelerating in order-taking and delivery, and the short-term order heat in the industry has risen.

5. Mid-term (2026.9 - 2027.9, 2% tax rate stage): Industry profit stratification, price war cooling down

Re-allocation of industry profits

The top tier battery cell enterprises (such as CATL, BYD, Eve Battery, etc.) have strong bargaining power and can pass on the majority of consumption tax costs to downstream vehicle manufacturers and energy storage integrators, with their gross margins largely unaffected;

Second-tier and lower-tier small battery manufacturers generally have a net profit rate lower than 3%, unable to smoothly raise prices to transfer tax burdens, directly squeezing profits and even going bankrupt and suspending production, and the low-end outdated capacity is accelerating elimination;

Vehicle end:: The cost of entry-level low-priced new energy vehicles has risen, and automakers cannot fully absorb it. The space for price reduction and internal competition in low-end models has shrunk, and the low-price competition pattern has eased; High-end models have sufficient premium, and the cost pressure can be internally absorbed.

Divergence in lithium battery for energy storage

Large-scale storage and household storage projects mostly have long-term contracts for price locking, and the tax burden of existing orders is borne by battery enterprises themselves; New projects in the bidding process will incorporate consumption tax into the quotation system, and the price of terminal energy storage systems will slightly increase, suppressing blind low-price bidding.

Structural differentiation in technical routes (strong policy guidance)

The tax burden of traditional liquid batteries has been rising year by year. Sodium batteries and solid-state batteries have a natural cost advantage of 2% to 4% due to tax exemption, and downstream vehicle manufacturers and energy storage enterprises will actively introduce new battery routes in small batches; The R&D resources of the industry will shift from simply expanding production capacity to the research and development of cutting-edge materials and new system batteries.

6. Long-term (after Sept. 2027, 4% full tax collection + export tax refund is zeroed out):

The industry completely abandons the policy benefits and enters market-oriented competition. With the dual policy support of "tax exemption + tax refund", the industry is relying on scale, process, technology, and supply chain management to obtain profits. The period of disorderly expansion of production capacity has come to an end;

The problem of overcapacity is passively cleared: The total domestic lithium battery production capacity far exceeds global demand. After the tax burden and the cancellation of export tax refund, inefficient production capacity has no survival space, and the industry concentration further concentrates towards the leading players;

Upstream resource end: The pricing of lithium, nickel, cobalt, etc. is more returning to the fundamentals of supply and demand, no longer driven by the internal competition of downstream expansion to cause sharp fluctuations;

Oil-electricity tax and finance gradually merge: Fuel vehicles are fully subject to consumption tax throughout the process, lithium batteries have their long-term tax exemption cancelled, the tax and finance environment of new energy and traditional fuel vehicles is leveled, and the industry shifts from "policy support and cultivation" to "fully marketized and equal competition".

7. Impact of Domestic Segments

Power Battery: Automakers are pressuring battery manufacturers to reduce costs, and also demanding higher energy density, yield, and production efficiency from battery cells; small-scale manufacturers of low-end lithium-ion batteries (such as those using ternary or lithium iron phosphate) are accelerating their exit from the market.

Consumer Lithium Batteries (3C, Small Power Applications): The product prices are low, and competition is extremely fierce. Tax burdens have the greatest impact on small-scale contract manufacturers. The industry is concentrating towards the leading contract manufacturers with higher levels of automation.

Energy Storage Batteries: Overseas residential storage orders are facing dual cost pressures of consumption tax and reduction in export rebates, while domestic large-scale storage tenders have an upward shift in the price center. The industry now places more emphasis on project returns rather than simply competing on price.

Thirdly, let's take a look at the core impact and structural changes on the overseas export market.

1. The addition of direct costs has narrowed the price advantage of Chinese lithium batteries in overseas markets. Previously, export prices were lower due to VAT refund; starting from 2026, the VAT refund will gradually decrease year by year, and it will be completely abolished in 2027. In addition, a 2% to 4% consumption tax will be added at the domestic production stage. As a result, the overall export cost of a single battery has increased by 6% to 10%.

In the past, Chinese lithium batteries relied on VAT refund and production scale to occupy over 70% of global battery installations and over 80% of energy storage battery shares. The pure price barrier has been weakened.

2. The necessity of establishing overseas factories has significantly increased

Domestic production for re-export: This involves paying both domestic consumption tax and incurring the loss of tax rebates, resulting in double costs;

Establishing factories overseas (in Europe, North America, Southeast Asia, Mexico): Local production does not require payment of Chinese consumption tax, which can avoid the impact of the cancellation of tax rebates, as well as the avoidance of anti-dumping, anti-subsidy, IRA legislation carbon tariffs and local production quotas in Europe and the United States;

The pace of overseas factory establishment by leading enterprises has significantly accelerated, and the cost-effectiveness of the domestic pure export OEM model has significantly decreased.

3. Overseas competitors are entering a window period, and the global supply chain diversification is accelerating.

Korean companies LG and Samsung SDI, as well as local battery enterprises in Europe and the United States, can rely on their domestic production capacity to narrow the price gap with Chinese batteries; European and American capital will further support the local battery industry chain, reducing their reliance on Chinese lithium batteries and shifting the global lithium battery supply chain from a "single core in China" to a multi-region dispersed layout.

4. Adjustment of Export Order Structure

Long-term contract major from customers (such as Volkswagen, BMW, Tesla overseas factories) will prioritize binding the production capacity of Chinese overseas factories and reduce direct imports from domestic China;

Small and scattered overseas orders, due to rising costs, have partially shifted to contract manufacturing in Southeast Asia or local procurement;

High value-added high-end power and energy storage batteries are less affected by costs, and low-margin white-label household storage and low-end 3C batteries will see a significant decline in export orders.

5. Enhanced Adaptability to Trade Barriers

Previously, many countries initiated trade investigations on the grounds of "excessive subsidies from China's industrial policies"; after the withdrawal of consumption tax and the reduction of tax rebates, the traces of policy support weakened, to some extent reducing the evidentiary basis for overseas anti-subsidy investigations, and is beneficial to the long-term compliance of leading companies to go global.

Fourth, let's take a look at the response strategies for lithium battery manufacturing enterprises and the sales end stratification.

(I) Leading cell manufacturers (such as CATL, BYD, EVE Energy, Sunwoda, etc.)

1. Pricing and tax burden transmission

Newly signed order contracts clearly stipulate that the consumption tax burden is passed on to the downstream buyers. Differentiate between tax-inclusive and tax-exclusive quotations, and incorporate the 2% and 4% new taxes into the pricing mechanism.

For strong-bonded customers such as Tesla and BYD's own vehicles, through annual lock-in volume and large-scale procurement negotiations, share some costs and avoid pressure on a single link.

2. Global capacity layout to hedge policy risks

Accelerate the establishment of factories in Europe, Hungary, Germany, Mexico, and the United States. The production in overseas bases directly supplies local automakers, completely avoiding losses from domestic consumption tax and export tax rebates; the domestic bases focus on the domestic market and some high-demand export orders.

3. Dual-line layout of tax-free new technology routes

Establish independent subsidiaries to promote the mass production lines of sodium-ion batteries, semi-solid / all-solid batteries, and enjoy the consumption tax exemption benefit until the end of 2028, forming a second growth curve; continuously reduce the process costs (improve yield, simplify manufacturing, optimize large cylindrical / phoenix structure) for the existing liquid lithium battery production lines to absorb the internal tax burden pressure.

4. Supply chain lock pricing and long-term contract binding

Sign 3-5-year long-term contracts with upstream suppliers such as lithium mines, salt lakes, electrolytes, and copper foils to lock in core raw material costs and hedge against the double pressure of lithium carbonate price increase and tax burden; layout equity participation in upstream lithium resources to stabilize raw material fluctuations.

5. Diversification of business structure

Increase the proportion of orders for energy storage, industrial storage, and grid peak-shaving energy storage, reduce reliance on the most price-competitive entry-level passenger vehicle battery; expand special batteries for special scenarios such as construction machinery, ships, and unmanned aircraft.

(II) Small and medium-sized lithium battery manufacturers (second-tier and tail-end production capacity)

• They have to reduce production capacity and shut down inefficient production lines: Eliminate outdated production lines with low yield, poor automation, and high unit cost, to avoid tax losses; Focus on niche and specialized markets (specialized power supplies, low-speed vehicles, small-scale energy storage), avoiding direct price competition from the leading players.
• Also they will Integrate into the leading supply chain for OEM services: Abandon independent brand exports and switch to being a factory for the leading battery cells. The leading company will negotiate prices uniformly and bear taxes, earning stable processing fees.
• Prioritize entering the sodium battery OEM market: With minor technological upgrades of the existing production lines, sodium-ion batteries can be produced, enjoying tax exemption policies and obtaining cost advantages through differentiation.
• Also need to Strictly control inventory and raw material reserves: Do not blindly stockpile lithium. Purchase as needed to prevent double impairment risks from falling lithium prices and taxes.

(III) for Trade Sales / Foreign Trade Export Enterprises

• Need to have Quotation System Reformed: Separate the factory price, consumption tax, value-added tax, and tax refund into three distinct components. Inform overseas customers in advance about policy changes and adjust quotations in stages to avoid a sudden and significant price increase resulting in cancellations;
• Order Model Switch: Transition from FOB domestic ports to overseas warehouses followed by local assembly, or collaborate with domestic factories and overseas branches for direct supply;
• Customer Screening: Eliminate low-value-added white-label orders with a gross profit rate lower than 8%, and focus on high-repurchase and long-term brand overseas customers.

(Ⅳ) Industry-wide common cost reduction & compliance actions

• Tax compliance refined management is needed: like:

Fully understand the details of consumption tax deductions, entrusted processing taxation, and import battery taxation, and utilize the models of imported processing and bonded warehouses to optimize cross-border tax costs; distinguish the tax calculation methods for self-used production of energy storage batteries and export batteries to avoid overpayment of taxes.

• Systematic cost reduction at the manufacturing end

Promote unmanned production lines, integrated die-casting, high-speed coating of electrode sheets, and recycling of second-life products; increase the recycling of battery products, use recycled lithium, cobalt, and nickel to reduce the cost of raw material procurement, and offset the cost increase caused by taxes.

• Collaborative integration and mergers

Regional small battery factories merge and reorganize, share procurement, production, and overseas channels, enhance bargaining power, and share tax and R&D costs.

• Make plans for tax rate transition period in advance

Before September 2026, review outstanding unfulfilled orders, clarify the tax-bearing party; for the increase to 4% in September 2027, reserve profit buffers in advance, and do not sign contracts with no price adjustment clauses that lock in low prices for an extended period.

Finally, let's summarize the general direction of the medium and long-term industry development:

• Policy Logic: Support New and Eliminate Old - Mature lithium batteries gradually eliminate fiscal and tax support, forcing the industry to abandon extensive expansion and internal competition; the next-generation battery technology provides a tax exemption window period, and targeted support for technological innovation.
• Domestic Market: Capacity clearance, concentration improvement, price wars converge, new energy vehicle products move towards high-end and long-range upgrades.
• Overseas Market: Chinese lithium batteries shift from "price export" to "technology + local production capacity export", global supply chain diversification, but leading enterprises still maintain core competitiveness by relying on technology and manufacturing advantages.
• Core Survival Logic of Enterprises: Unable to make profits by relying on policy dividends, they must build core barriers by relying on technology, manufacturing, supply chain, and global layout.

I hope my response can be of help to you. If you have any other questions, please leave a message for us below. thank you.