Lithium-ion batteries, which had been exempt from consumption tax for over a decade, entered the taxable period starting September 1st this year—how significantly will this affect battery manufacturers and vehicle OEMs?

Let me first share some hands-on experience I’ve gained working in the new-energy sector, to lend credibility to my analysis. I previously focused on investing in several new-energy enterprises—some profitable, others not. The first was XPeng: after the Mono 03 launch, I built a heavy position and exited roughly a year later—earning over 100% returns on the Hong Kong exchange. The second was Geely: when BYD’s price war was officially halted, I quickly positioned myself in Geely and exited with gains of 30–40%. The third was BYD itself—this one ended in a loss. At the time, the market was hyping solid-state batteries, and I bought in based on confidence in BYD’s technology—entering around RMB 100 per share, only to watch it fall to RMB 95. After losing roughly 4–5%, I cut my losses and exited immediately. Now, let’s discuss how the new tax affects enterprises. Take CATL as an example: downstream players—including Xiaomi and many others—are actively seeking alternative battery suppliers. Partnering with tier-two battery makers like Sunwoda is a classic cost-reduction strategy—aimed precisely at mitigating this newly imposed tax burden. Yet this shift inevitably erodes CATL’s profit margins. The underlying logic is straightforward: Automobile sales are sluggish this year; competition among OEMs has become extremely intense; and consumers’ price sensitivity far outweighs their brand loyalty to any single battery supplier. As a result, many automakers are turning to tier-two battery manufacturers to hedge against pricing pressure—a trend widely referred to in the industry as “de-CATL-ization.”

Lithium-ion batteries—exempt from tax for over a decade—are now being taxed again: how will profits across this supply chain be redistributed?

• Upstream: Raw materials—lithium ore, cathode materials (e.g., lithium iron phosphate), anode materials (e.g., graphite), electrolytes, and separators—these are the battery’s 'staple foods.' • Midstream: Manufacturing—cell production, battery management system (BMS) integration, and PACK assembly—transforming raw materials into finished batteries. • Downstream: Applications—power batteries and energy storage batteries installed in new-energy vehicles and grid-scale storage systems—the batteries ‘go to work.’ China maintains a fully integrated industrial system across all three segments: upstream includes lithium-mining and materials firms such as Ganfeng Lithium and Tangshan Technology; midstream features cell manufacturers and equipment suppliers including CATL, BYD, and EVE Energy; downstream encompasses both vehicle OEMs and large-scale energy storage system integrators. At the national level, policy support for comprehensive battery-industry development plans has already been announced, and industry maturity continues to rise. Remember this framework—it’ll help clarify how the tax flows through the chain. IV. Transmission Mechanism: Explained in One Table The essence of this tax announcement can be distilled into eight characters: “phased implementation” and “targeted exemption.” “Phased implementation”—the 4% tax rate won’t take effect all at once. Instead, it begins at 2%, then rises to 4% one year later—giving the entire supply chain breathing room to recalculate costs and renegotiate terms. “Targeted exemption”—cutting-edge technologies such as sodium-ion and solid-state batteries remain tax-exempt, reinforcing state support for next-generation battery innovation. As industry insiders put it: “This marks the end of the era of blanket subsidies—and signals a shift toward equitable burden-sharing and preferential support for high-performing technologies.” In plain terms: the state is no longer handing out free candy to the whole industry. Instead, mature technologies begin paying up, while emerging ones continue enjoying exemptions—using price levers to steer resources toward more efficient, higher-value domains. Once reinstated, the tax propagates along the supply chain in both directions. This transmission isn’t theoretical—it’s already underway. Below is a summarized table answering five key questions: Who bears the initial impact? In which direction does it flow? Through what mechanism? How soon does it materialize? And what data can verify it? | Segment | Impact Direction | Mechanism | Timeframe | Verifiable Metrics | |---------|------------------|-----------|-----------|---------------------| | Upstream (lithium ore, cathodes/anodes, electrolytes, separators) | Pressure: rising bargaining pressure | Cell manufacturers collectively press suppliers for price cuts (e.g., one industry leader issued a notice demanding ~1.5 percentage-point reduction across procurement prices); yet demand remains rigid and resource prices continue rising | Short term (already underway post-announcement) | Prices of raw materials (e.g., lithium carbonate), revenue & net profit margins of mining and materials firms | | Midstream (cell manufacturing) | Direct pressure | Tax burden added to cost base and difficult to fully pass on; new orders explicitly list tax as a separate line item, with attempts to share it across upstream/downstream partners | Immediate cost shock; medium-term structural optimization | Gross margin, order pricing models, progress on quotation adjustments | | Emerging technologies (sodium-ion, solid-state, fuel cells, etc.) | Clear benefit | Tax exemption amplifies cost advantage (e.g., sodium-ion material costs are 10–15% lower than LFP); numerous expansion projects are rapidly advancing toward commercialization | Capacity ramp-up expected by end-2026 to 2027 | Announcements of sodium-ion project investments; sodium-ion battery installation volume & shipment share | | Downstream (OEMs & energy storage) | Limited impact, relative benefit | Tax burden is dispersed at the battery level; energy storage and export applications remain exempt; OEMs absorb part of the cost and pass savings to consumers; sodium-ion EVs may sell at 2–4% lower price points | Short term (observable within 2026) | Monthly battery installation volume, new-energy vehicle sales, energy storage installation growth rate | The mechanism condenses into four steps: tax reinstatement (raising costs for mature technologies) → targeted exemption (amplifying relative advantages for emerging technologies) → supply-chain renegotiation and burden-sharing (upstream squeezed, downstream negotiating co-payment) → competitive landscape tilting toward higher-efficiency technological pathways.

CATL Sees Limited Impact From China’s New Battery Tax on Orders

17 hours ago

CATL reports limited impact from China's new 2% battery tax despite order volatility, citing strong energy storage output driven by domestic investment. However, declining project returns may cause future fluctuations.

bloomberg

2026-09-20

CATL Sees Limited Impact From China’s New Battery Tax on Orders

CATL Sees Limited Impact From China’s New Battery Tax on Orders

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