For the first time in ten years, China will impose taxes on lithium and solar batteries, while sodium batteries will continue to be exempt.

For the first time in ten years, China will impose taxes on lithium and solar batteries, while sodium batteries will continue to be exempt.

      China is ending a decade-long tax exemption on lithium and solar batteries to address overcapacity issues. Sodium-ion and solid-state batteries will continue to be exempt until 2028. Starting this September, a 2% consumption tax on lithium-ion batteries will be introduced, increasing to 4% in September 2027. Solar cells will follow this trend, with a 4% tax commencing in April 2028.

      The Chinese government had exempted these technologies from the consumption tax in 2015 to promote the clean energy transition, a strategy that has successfully positioned Chinese manufacturers as leaders in the global markets for EV batteries and solar panels. However, extensive capacity expansion has led to significant overcapacity and fierce competition domestically. Earlier this year, authorities convened top battery manufacturers to caution against unchecked growth and aggressive pricing.

      Notably, sodium-ion batteries, solid-state batteries, and perovskite solar cells will remain exempt from taxes until at least the end of 2028. China is making substantial investments in sodium battery technology as a strategic alternative to lithium, which it largely imports. The structure of this exemption highlights Beijing's intent to tax established technologies facing overcapacity while supporting the development of newer technologies.

      This new tax will increase costs for battery producers like CATL and BYD during a time of already narrow profit margins. It may also result in higher EV prices in China, where over 200 electric models are available for under $25,000. The ongoing AI-driven memory shortage has already raised prices in consumer electronics due to supply chain pressures, and this battery tax introduces an additional cost burden. For Chinese battery manufacturers exporting to Europe and the US—where tariffs are already pressuring margins—the domestic tax presents another challenge.

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For the first time in ten years, China will impose taxes on lithium and solar batteries, while sodium batteries will continue to be exempt.

China will conclude a decade-long exemption from consumption tax on lithium batteries (2% starting in September, rising to 4% in 2027) and solar cells. However, sodium and solid-state options will remain exempt.