Major shift after 11 years! Battery consumption tax policy implemented: A milestone turning point for the new energy industry in the "post-subsidy era"?
```
The Ministry of Finance, the General Administration of Customs, and the State Taxation Administration jointly issued a policy adjusting the consumption tax for batteries and photovoltaics. The policy clearly stipulates that from September 1, 2026, there will be a 2% consumption tax on lithium-ion batteries and others, rising to 4% on September 1, 2027; for photovoltaic cells, a 2% tax will be imposed starting April 1, 2027, increasing to 4% on April 1, 2028. Meanwhile, from September 1, 2026, to December 31, 2028, sodium-ion batteries, solid-state batteries, fuel cells, and next-generation technologies such as perovskite/tandem batteries will enjoy a special arrangement of full consumption tax exemption.
In the short term, the increase in lithium battery costs is limited (about 500-1000 yuan per vehicle), but the policy accelerates the industry's shift from a "price war" to a "technology war." In the mid-term, the new tax, combined with the cancellation of export tax rebates (from 2027), will hasten industry optimization, with leading companies continuing to benefit due to their cost pass-through capabilities. In the long term, new technologies like sodium and solid-state batteries gain a three-year tax-free window, which is expected to mark a new inflection point for industrialization.
1. What happened? Consumption tax policy implemented
On July 16, 2026, the Ministry of Finance, General Administration of Customs, and State Taxation Administration issued a joint announcement: from September 1, 2026, a 2% consumption tax will be imposed on lithium-ion batteries (rising to 4% in September 2027); starting from April 2027, a 2% tax on photovoltaic cells (rising to 4% in April 2028); a tax-free window is also provided for sodium-ion batteries, solid-state batteries, and perovskite/tandem batteries until the end of 2028. This marks a major policy shift 11 years after batteries were exempted from consumption tax in 2015.
In 2015, China’s lithium battery industry was still catching up, holding less than a 30% share of the global market, making tax exemption a means to support strategic emerging industries. Eleven years later, the situation is completely different—by the first half of 2026, China’s cumulative output of power and energy storage batteries reached 1,068.9 GWh, up 53.3% year-on-year, holding over 75% of global output. Shi Zhengwen, director of the Fiscal and Tax Law Research Center at China University of Political Science and Law, commented: “The industrial landscape has changed dramatically, with new technologies and products emerging. Without timely tax policy adjustments, preferential policies can no longer achieve targeted regulation, nor promote healthy development in the battery industry.”
This “phased” design fully considers the capacity of each segment and the industry status quo. The photovoltaic industry is currently in a deep de-capacity phase (polysilicon prices at 30-33 yuan/kg, cells at 0.27 yuan/W, both near cash cost lines), and postponing the tax gives the industry a crucial window for recovery.
Key points of the policy: who pays, when, and how much
The core clauses can be summarized as a “three-by-three” matrix: vertically, product types are classified as lithium battery group, photovoltaic cell group, and new technology exemption group; horizontally, by timing, as phase one (2% low rate) and phase two (4% standard rate).
First, lithium battery group (taxed from September 1, 2026): Applies to lithium-ion accumulators, lithium primary batteries, nickel-metal hydride batteries, mercury-free primary batteries, and vanadium redox flow batteries. This means the mainstream LFP and NCM/NCA chemistries for both power and energy storage batteries are fully covered by the tax. For example, in June 2026, total power and storage battery sales reached 196.0 GWh (68.1% power, 31.9% storage), with LFP making up 83.3% of installed capacity—almost the entire shipment will be affected. At a 2% tax rate and an average cell price of about 0.50 yuan/Wh, each GWh will bear about 10 million yuan in new tax, amounting to 20-40 billion yuan annually for the industry (depending on annual shipments and price center).
Second, photovoltaic cell group (taxed from April 1, 2027): Includes crystalline silicon photovoltaic cells (current mainstream PERC, TOPCon, HJT). PV cell taxation starts 7 months later than batteries, with a first tax rate of 2%. This acknowledges the current difficulties for photovoltaics—polysilicon at 30-33 yuan/kg, cells at 0.27 yuan/W, modules at 0.70 yuan/W, the whole industry chain is mostly loss-making, with Trina Solar only barely profitable. Tax imposition is postponed to avoid “rubbing salt in the wound.”
Third, new technology exemption group (September 1, 2026 to December 31, 2028): The most “industry-guiding” provision. Sodium-ion, solid-state, fuel cells, plus perovskite, tandem, and gallium arsenide photovoltaic cells, are tax-free for about 2.5 years. These six technologies comprise the current “next generation battery technology roadmap”—sodium targets cost (now down to 0.35-0.50 yuan/Wh, near LFP parity), solid-state aims for performance (500+ Wh/kg, small batch installations by 2027), perovskite/tandem for efficiency leap (26%+ single cell, 33%+ tandem).
While 2% may seem low, battery industry net margins are only 5-15%, so a 2% consumption tax eats up 15-40% of average profits. For those with net margins below 5% (second/third-tier battery or materials firms), this could be the “final straw.” Simultaneously, exempted techs have a 2.5-year “policy arbitrage” window—matching the period during which sodium batteries scale from 10 to 50 GWh, and solid-state from engineering validation to small-scale installation.
In summary, this policy has three comparative implications:
First, it contrasts with U.S./European “subsidy races.” The U.S. IRA gives $35/kWh tax credits to domestic battery makers, the EU’s Green Deal Industrial Plan provides tens of billions of euros to battery gigafactories (France alone approving 63 billion euros for offshore wind & storage). China’s shift from subsidy to tax signals industry confidence—the domestic industry no longer relies on subsidies for competitiveness, but needs tax regulation to curb over-expansion and ultra-low-price competition.
Second, consumption tax’s “regulation function” outweighs revenue function. Given 2 TWh annual battery shipments, 0.45-0.55 yuan/Wh average price, and 2% tax rate, the first year’s battery consumption tax revenue is about 18-22 billion yuan, only about 1% of China’s 1.6 trillion-yuan total consumption tax pool for 2025. The Ministry of Finance’s announcement puts its goals as “promoting resource conservation and environmental protection,” “addressing disorderly competition,” and “driving tech progress and industrial upgrade”—with revenue last in priority.
Third, the exemption list is highly targeted. The six exempted technologies form a “future battery technology matrix”: sodium for economics, solid-state for energy density ceiling, perovskite/tandem for photovoltaic efficiency ceiling. Such a precise “tax signal” is rare globally—it’s not just support, it’s deliberately using a 4% vs 0% tax gap to steer hundreds of billions in capital flows.
2. Why is this important? Cost shock — supply chain stress test
Before analyzing tax transmission in the supply chain, we must clarify the lithium battery cost structure. For mainstream LFP power cells: cathode material is 35-40% (lithium carbonate is 35-45% of that), anode 8-10%, electrolyte 10-12%, separator 5-7%. These four elements are 65-70% of costs, the rest is copper/aluminum foil, structural parts, manufacturing, packaging. Battery plants’ (cell manufacturing) gross margin is typically 15-20%. Cathodes form 38% and depend on lithium carbonate, so tax impact is magnified down the cathode→lithium carbonate chain.
Legally, the tax is paid by battery makers, but the true “tax incidence” depends on bargaining power in the supply chain and demand. We model three transmission scenarios:
Scenario 1 (optimistic, 30% likelihood): Battery firms absorb it. If demand is strong (high growth in storage/EV), factories are busy (>90% utilization), and can pass 60-70% of the tax cost downstream via price increases. Profit margin impact for battery makers is 0.6-0.8 percentage points—CATL for instance (24.8% gross margin) can absorb this. Hunan Yuneng’s recent 2000 yuan/ton price hike fully covers upstream material cost increases, showing leading firms are already passing on costs.
Scenario 2 (baseline, 50% likelihood): Cost is shared. Battery firms raise prices 1-1.5% (passing down 50-75% of the tax), automakers/storage integrators absorb some, some goes to end users. For a 60 kWh EV pack (costing 30,000 yuan), final cost rises 300-450 yuan (0.15-0.3% of a 150,000-250,000 yuan vehicle), negligible for demand.
Scenario 3 (pessimistic, 20% likelihood): Weaker demand, battery firms must absorb it all. If China EV retail sales keep declining (down 17.2% y/y in H1) or storage tenders weaken, battery companies’ bargaining power drops. In this case, lower-tier firms face 2-3 point gross margin compression—those with only 3-5% net margin could see profits halved.
Storage is the most “at risk” segment. Unlike EV batteries, storage project IRR is highly sensitive to initial cost—each 0.01 yuan/Wh rise in system cost reduces IRR by 0.3-0.5 points. In H1 2026, global storage battery shipments hit 507.8 GWh (+97.5%), price at 0.42-0.50 yuan/Wh, with integration margins only 8-12%. A 2% tax means 0.008-0.01 yuan/Wh system costs—seemingly small, but since IRR hovers at 6-8%, this may kill marginal projects.
On the other hand, storage is also seeing price recovery. Shenghong announced 10-30% price increases on all PCS products in July, signaling the end of ultra-low-price competition and a turn to normalized profits. With new tariff policies and improving independent storage economics, the extra tax cost may be absorbed as the industry returns to “normal pricing.”
The core issue for storage: cells are over 55-60% of system cost—the tax is concentrated here.
3. What to watch next? The technology Darwin moment
The deepest impact of this tax is not the 2% or 4% rate per se, but in creating artificial competition asymmetry between “taxed” and “untaxed” technologies. This will last at least 2.5 years (until December 31, 2028), matching the key battery tech iteration window. The tax exemption gives new technologies a “cost moat”—while their absolute cost is still higher than LFP (except sodium), the tax benefit accumulates yearly, and combined with their own cost reduction curves, will spur inflection.
Of all affected technologies, sodium-ion batteries will benefit most evidently. Three reasons:
First: Cost parity is accelerated. Current sodium cell costs are 0.35-0.50 yuan/Wh (leading firms at 0.35), LFP at 0.38-0.45 yuan/Wh—already neck and neck. A 4% tax hike on LFP (0.015-0.018 yuan/Wh) imposes a “weight” on LFP’s cost side, making sodium’s advantage arrive sooner. China Securities expects sodium and lithium parity by end-2026 for top suppliers; Bernstein predicts sodium enjoying a 15-20 USD/kWh (0.11-0.15 yuan/Wh) advantage in 2027—the tax may be a catalyst for this early arrival.
Second: Orders are coming in. CATL and Hibox signed a 60 GWh, three-year sodium-ion storage deal (the world’s largest so far); CATL will deliver the first batch to customers in September, showing commercialization is beyond “PPT stage.” Bernstein forecasts 26.8 GWh global sodium shipments in 2026 (over half for storage). Morgan Stanley’s Jack Lu compared this moment for sodium to LFP in 2020—LFP’s share was only 35% then, now 83% in four years.
Third: Positive chain reaction. Exemption → more orders → scale → lower costs → more orders—the flywheel has started. CATL plans 5 billion yuan for 40 GWh more sodium capacity; BYD has over 230 sodium battery core patents; Gotion High-Tech has a sodium brand and Q4 plans for mass production. With leading players betting big, the industrial ecosystem (especially hard carbon anodes) will mature quickly.
The tax effect isn’t linear; it depends on two key variables: tax pass-through ratio (how much battery makers can push costs downstream) and end-demand growth (whether EV + storage demand sags due to price upticks). Based on these we construct a four-quadrant scenario matrix:
Key judgments are—Consumption tax isn’t a “devastating blow” but a “structural filter.” We sum up the policy dividends in three layers:
Dividend one (highly certain): Competitive landscape optimization. The tax sets a cost floor against “involutionary” (hypercompetitive) low-margin price wars. Firms with <3% net margins can’t handle a 2-4% tax hike and will exit passively, spurring market share and pricing power for leading firms. Hunan Yuneng’s and Shenghong’s sequential announcement of price hikes marks a turning point from price wars to price normalization.
Dividend two (high potential): Accelerated tech substitution. The tax-free window for sodium/solid-state/perovskite/tandem (until end-2028) aligns with their scaling period (2027-2029), creating policy-industry “resonance.” If sodium achieves full parity in 2027 (probability 60-70%), the tax will shift from a “cost” to a “catalyst”—this logic may flip around September 2027 (when the rate rises to 4%).
Dividend three (conditional): A reaffirmation of global competitiveness. China’s battery global share is >75%. Imposing domestic consumption tax means China will no longer use “tax subsidies” as a competitive tool—showing maturity and confidence. If the US/EU set trade barriers (IRA, EU carbon tariffs), the domestic consumption tax may be China’s argument in WTO cases against anti-dumping—“we tax our own batteries, too.”
Risk warning and disclaimerThe market has risks and investment must be cautious. This article does not constitute individual investment advice, nor does it consider the special investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Any investment actions based on this article are at one’s own risk. ```