Lithium Battery Excise Tax to Resume in September 2026, Raising EV Costs

The Ministry of Finance, the General Administration of Customs, and the State Taxation Administration jointly issued an announcement clarifying that, effective September 1, 2026, consumption tax will be reinstated on battery products such as primary lithium batteries and lithium-ion storage batteries, ending a policy that had exempted lithium batteries from consumption tax for over 11 years. This adjustment is seen as part of a broader move to gradually phase out tax incentives for new energy vehicles (NEVs) and align their taxation system with that of conventional fuel-powered vehicles. As an ad valorem tax embedded in product prices, the consumption tax will directly increase costs for battery manufacturers and could be passed on to consumers through higher NEV retail prices. According to estimates, the manufacturing cost per battery-electric vehicle (BEV) will rise by RMB 396 to RMB 1,200, while plug-in hybrid electric vehicles (PHEVs) and range-extended electric vehicles will see cost increases of RMB 260 to RMB 660 per unit. If the full statutory rate of 4% is applied, these cost increases would be even greater. Although the additional tax burden represents less than 1% of a vehicle’s total price, it remains significant given automakers’ currently narrow profit margins. At present, many automakers have not yet received detailed implementation rules regarding the battery consumption tax, and there is no clear plan on whether the added cost will be absorbed by manufacturers or passed on to consumers. Industry experts suggest that automakers are likely to absorb part of the cost themselves, while upstream battery suppliers may also share some of the burden, potentially affecting pricing mechanisms in procurement agreements between vehicle manufacturers and battery suppliers.