Automakers Speed Up In-House Battery Development and Production to Counter Margin Pressure and Excise Tax Changes

Cui Dongshu, Secretary General of the China Passenger Car Association, pointed out that automakers’ profits are currently being significantly squeezed by battery manufacturers. According to the 2025 Fortune Global 500 data, Chinese automakers on the list reported a combined profit of USD 14.7 billion, of which a leading battery maker contributed USD 7.1 billion—leaving the rest of the vehicle manufacturers with only about 10% of the total profit share. This battery company alone posted a net profit of RMB 72.2 billion in 2025, surpassing the combined profits of 13 A-share-listed automakers. From January to May 2026, the automotive industry’s sales profit margin stood at just 3.4%, hitting a historical low. Cui noted that the recent adjustment to the battery consumption tax announced by the Ministry of Finance and two other government departments provides institutional incentives for automakers to produce their own batteries. Under the new policy, companies using self-produced taxable batteries for continuous manufacturing processes are exempt from paying the consumption tax; meanwhile, those purchasing externally sourced batteries that have already been taxed can claim input tax credits. This means automakers producing their own batteries and directly installing them in vehicles can avoid or offset related tax burdens, whereas those relying on externally purchased batteries will bear the transferred tax costs. At current lithium-ion cell prices of RMB 0.35–0.40 per watt-hour (Wh), a 2% consumption tax translates into an impact of approximately RMB 0.007–0.008 per Wh—adding roughly RMB 1,000 to the cost per vehicle. For an automaker producing one million vehicles annually, this could result in cumulative additional costs amounting to several hundred million RMB. Currently, BYD has established strong capabilities in lithium iron phosphate (LFP) batteries, while Great Wall Motor ranks second in ternary battery installations. Geely and other automakers have also begun developing their own power batteries, with some already achieving partial mass production. Companies such as CATL, SVOLT, CALB, and LG Energy Solution still hold advantages in ternary battery technology, with SVOLT showing particularly strong recent performance. Moreover, the policy grants temporary exemptions from the consumption tax until the end of 2028 for next-generation technologies like sodium-ion and solid-state batteries, offering automakers a strategic window to invest in emerging technologies. As solid-state batteries transition from lab-scale development toward mass production, the tax exemption helps reduce upfront investment costs and accelerates technological readiness. Cui emphasized that tax incentives are shifting from the downstream consumer end toward upstream manufacturing segments of the supply chain. Automakers that proactively build in-house battery R&D and production capabilities will gain significant cost advantages under this round of tax reforms. He stressed that mastering core power battery technologies has become essential for automakers to establish long-term competitiveness—and that leading large-scale automakers must produce their own batteries.