China Reinstates Consumption Tax on Lithium-Ion Batteries, Battery Makers and Automakers Clash Over Who Foots the Bill
nashnova research
China ended an eleven-year tax exemption on lithium-ion batteries on September 1, restoring a 2% consumption tax that will double to 4% a year later; battery makers want automakers to absorb the cost, but carmakers — squeezed by subsidy cuts and softening demand — are pushing back hard.
What exactly is this tax?
China's consumption tax on lithium-ion batteries — a levy charged at the production stage on specific consumer goods — had been waived for eleven years. It returned at 2% on September 1 and will rise to the full 4% rate one year later.
This means → the phase-in gives the supply chain a buffer, but the eventual doubling of the tax burden is locked in.
In plain terms = for over a decade, batteries were tax-free at this stage. Now the bill is back — and growing.
What are battery makers trying to do?
EVE Energy (億緯鋰能), the world's fifth-largest battery maker by shipments, notified customers on July 24 that it plans to add the 2% tax to all China-market orders shipped after September 1.
This means → EVE's position is clear: the tax is a new cost, and the downstream buyer should bear it.
This reflects the fact that battery makers' own margins are thin — they cannot afford to absorb the charge alone.
Why are automakers refusing?
Two people familiar with the matter told the South China Morning Post that automakers have rejected the pass-through plan; the two sides remain in a negotiation deadlock.
Carmakers cite a double squeeze: subsidy cuts and weakening Chinese demand have already slashed EV profit margins sharply, leaving no room for an extra charge.
In plain terms = the automakers' message is simple — we are barely profitable as it is; do not push this bill onto us.
What does this standoff reveal?
The dispute exposes a deeper strain across China's EV industry: relentless price wars and razor-thin margins leave neither upstream nor downstream with spare capacity to absorb new costs.
This means → the most likely outcome is a split-the-difference compromise, or partial pass-through to end consumers.
As the rate climbs from 2% to 4%, this tug-of-war will replay — who ultimately pays remains unresolved.
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