For the first time in ten years, China will impose taxes on lithium and solar batteries, while sodium batteries will remain tax-exempt.

      China has ended a decade-long tax exemption on lithium and solar batteries in an effort to address overcapacity issues. However, sodium-ion and solid-state batteries will continue to be tax-exempt until at least 2028. For the first time in ten years, China will implement a consumption tax on lithium-ion and solar batteries, beginning with a 2% tax on lithium-ion batteries this September, set to increase to 4% by September 2027. Solar cells will follow a similar timeline, starting with the tax in April 2027 and reaching 4% by April 2028.

      The exemption for both technologies was introduced in 2015 to promote the clean energy transition, a strategy that resulted in Chinese manufacturers leading the global markets for electric vehicle batteries and solar panels. However, rapid capacity growth has led to significant overcapacity and intense competition domestically. Earlier this year, authorities met with top battery producers to caution against aggressive expansion and harmful pricing practices.

      Notably, sodium-ion batteries, solid-state batteries, and perovskite solar cells remain exempt from taxes until at least the end of 2028. China is heavily investing in sodium battery technology as a strategic substitute for lithium, which it imports at a rate of 75%. This exemption indicates that Beijing is targeting mature technologies that contribute to overcapacity while safeguarding the emerging ones it aims to develop further.

      The new tax will increase expenses for battery manufacturers like CATL and BYD, especially with already narrow profit margins. It may also lead to higher electric vehicle prices in China, where over 200 battery-powered models are offered for under $25,000. The ongoing AI-driven memory shortage has already raised prices for consumer electronics due to supply chain pressures, and this new battery tax adds an additional policy-related cost. For Chinese battery manufacturers exporting to Europe and the US, where tariffs have already impacted margins, this domestic tax presents another challenge.