With only 30 days to go before the lithium battery tax exemption expires, who will foot the 2% to 4% consumption tax?
This tax adjustment has not only changed the quotation sheets of cell manufacturers, but also altered the cost accounts of new energy vehicle enterprises, and even prompted some upstream material suppliers to re-evaluate their supply prices. All cell manufacturers, vehicle makers and material suppliers are recalculating their books: who will bear the cost, who will make concessions, and who will shift to a new track?
There are more than 30 days left before the consumption tax on lithium-ion batteries is restored on September 1.
In the office of an energy storage cell enterprise in the Yangtze River Delta, Liu, the operations director and factory head, is preparing to revise the relevant quotation sheets.
Liu told reporters from Economic Observer that based on the calculation of the enterprise's full-year 2025 operating financial report, the net profit margin of his company is 3.2%, and the upcoming 2% consumption tax will account for more than 40% of its total profit. When the tax rate rises to 4% in 2027, this tax expense will exceed the annual net profit of the enterprise. He added that this is a static calculation: the consumption tax is levied on tax-exclusive sales revenue, and does not take into account the cost changes brought by the input tax deduction of upstream consumption tax.
On July 17, the Ministry of Finance, the General Administration of Customs, and the State Taxation Administration officially issued an announcement to resume the collection of consumption tax in stages for battery products that were previously exempt from consumption tax, such as lithium primary batteries and lithium-ion storage batteries. Two tiered tax rates are set: 2% from September 1, 2026 to December 31, 2026, and the tax rate will rise to 4% from January 1, 2027.
When this tax category was first introduced in 2015, lithium batteries were granted tax exemption to support the domestic battery industry which was still in the cultivation stage at that time. Eleven years later, China's lithium batteries account for more than 80% of global shipments, the industry has gone through the support period, and the tax exemption policy is officially withdrawn. At the same time, sodium-ion batteries and solid-state batteries are given a tax exemption window until December 31, 2028. To enjoy the tax exemption, products must meet the corresponding national standards, and enterprises must hold a compliance test report issued by an institution with CMA (Provincial or above Metrology Accreditation, with battery testing items included in the qualification appendix) qualification. Relevant qualification materials are required for tax exemption application, and enterprises cannot go through the exemption procedures without them.
This tax adjustment has not only changed the quotation sheets of cell manufacturers, but also altered the cost accounts of new energy vehicle enterprises, and even prompted some upstream material suppliers to re-evaluate their supply prices. All cell manufacturers, vehicle makers and material suppliers are recalculating their books: who will bear the cost, who will make concessions, and who will shift to a new track?
The Tax Tug-of-War on a Quotation Sheet
The aforementioned tax category granted tax exemption to lithium batteries when it was established in 2015, to support the domestic battery industry that was still in the cultivation stage back then. At that time, the domestic lithium battery industrial chain was far from mature. Eleven years later, China's lithium battery industry has developed the ability for self-sustaining growth. This resumption of taxation does not represent a policy U-turn, but a normal institutional return after the industry has completed the "support and escort" phase.
Short-term pain is an inevitable process for an industry to move towards maturity. The shift of taxation tools from exemption-based support to fair regulation also marks that the industry has entered a new stage. In late July, after the aforementioned policy was released, Liu convened a meeting of four departments: sales, procurement, production and finance.
The factory he runs mainly produces lithium iron phosphate energy storage cells, 70% of its orders go to domestic industrial and commercial energy storage integrators, and it has no overseas export business. The plan formed at the meeting is clear: existing stock orders and new orders will be handled separately.
Stock orders are the most intractable problem. The long-term agreement contracts won by the enterprise through bidding at the beginning of the year only include a floating mechanism for lithium carbonate prices, and no room for sharing new taxes such as consumption tax is reserved. Energy storage integrators stick to the contract terms and refuse to bear any additional costs for goods delivered after September. The consumption tax for this part of orders can only be borne by the cell manufacturer itself.
New orders have entered a tug-of-war.
Liu has formulated a tiered quotation plan: for cells delivered after September 1, the quotation is split into two parts: the base cell price and the shared consumption tax. He put forward two modes for customers to choose: the customer bears the full tax, or the two parties each bear half.
The statutory payer of consumption tax is the cell production enterprise, and all tax sharing between upstream and downstream is a market-oriented commercial agreement that will not change the statutory tax subject.
In the past week, he held price negotiation meetings with several long-term cooperative energy storage integrators. The focus of the negotiation is stuck on the sharing ratio.
Liu said that most industrial and commercial energy storage integrators are also bound by fixed energy service contracts with end parks and factories, so they cannot raise prices to upstream, and are only willing to bear 30% of the new costs. Two large grid-side energy storage integrators have slightly higher budget flexibility, agreed to split the new orders 50/50, but insisted that the price of stock orders cannot be raised by a single cent. Three other small energy storage packagers took a more direct attitude: if the price rises, they will switch to products from leading battery manufacturers, or directly adopt sodium battery solutions.
Liu dare not raise prices drastically.
A sales director of a second-tier energy storage cell enterprise told Economic Observer that he has recently encountered a similar situation. For example, the quotation sheet for downstream customers has been revised several times, and every time he adjusts the price, the customer will press for a lower price. Customers with large order volumes have very little room for concession, and his company dare not ask for a price increase.
The responses from the upstream also show differentiation.
In late July, Liu's procurement department sent letters to four upstream main material suppliers, proposing to lower the overall procurement price by 1.5 percentage points.
Even if upstream suppliers are willing to cut prices, adjustments can only be made in new quarter orders in the short term. At present, Liu's enterprise is still purchasing goods at the original price for the stock of the past two months, so the short-term cost reduction effect is limited.
The quotation sheet on the desk is still being revised. Liu said that there is still time before September 1, but every day is counting down.
The Financial Checklist in the Countdown
There are more than 30 days left before September 1. In the finance office of Su Ming's company, team members are sorting out the purchase invoices of the past six months.
Su Ming's sodium battery start-up retains a small number of lithium battery pilot verification production lines at the same time. Lithium batteries are subject to tax while sodium batteries are exempt, but the two share the same batch of equipment and part of common raw materials.
After September 1, every batch of lithium battery cells leaving the warehouse will be taxed, while sodium battery shipments can continue to enjoy tax exemption.
The core task of his finance team in the past few days is to draw a clear cost boundary between the two types of products before September.
One of the difficulties is the sharing of shared costs. The same pilot line alternately produces lithium batteries and sodium batteries, and equipment depreciation, utilities, labor and common auxiliary materials are all mixed together. The accounting of consumption tax requires accurate division of the cost base corresponding to the two products: the lithium battery part should be included in the tax calculation base, while the sodium battery part can be excluded.
Su Ming told Economic Observer that at present, the working hour allocation method can only be adopted: record the daily operating hours of lithium batteries and sodium batteries on each production line, and allocate public manufacturing expenses according to the proportion of working hours. All material requisition notes and production work orders are forced to mark the product category to facilitate traceability afterwards.
The allocation method itself is somewhat controversial. There is no unified tax template in the industry: some enterprises allocate costs by working hours, while others by material value. Su Ming recently visited the tax source management department of the local tax bureau for docking, and got the reply that the working hour allocation method is acceptable, but the enterprise is required to keep the working hours, material requisition and equipment operation records for three consecutive months for future reference.
He said that the local tax staff stated in face-to-face communication that the working hour allocation method can be used as a compliance accounting path, but there are no unified national written implementation rules at present. They can only follow this method for the time being, keep all production ledger materials completely for future reference, and the final accounting requirements shall be subject to the subsequent official tax collection and management documents.
Packaged invoicing is another practical problem at the operational level.
Many energy storage customers purchase sodium battery cells, lithium battery cells and supporting BMS (Battery Management System) in one package, sign a total procurement contract, and settle the total price uniformly. Tax regulations require the separation of tax-exempt payment for sodium batteries and taxable payment for lithium batteries, but customers are unwilling to issue separate invoices and hope to issue a total amount invoice combined. Once the invoices are combined, there are two possible tax recognitions: the total amount is regarded as lithium battery for tax calculation, or the enterprise is required to prove the split ratio. The sales department of this enterprise is now required to specify the price of lithium batteries and sodium batteries separately in all packaged contracts.
Su Ming said that there have already been two orders where the finance department refused to process because customers insisted on combined invoicing, and the business department is renegotiating the contract split plan with customers.
The aforementioned sales director of the second-tier energy storage cell enterprise told Economic Observer that his company has also encountered the problem of packaged invoicing. He gave an example: "The customer ordered a whole batch of energy storage systems, which include both lithium batteries and sodium batteries, and the contract only writes a total price. We asked for separate invoices, and the customer reported that splitting the details so finely would make financial entry too troublesome. In the end, we made concessions and added a detailed list to the contract appendix to solve the problem."
The aforementioned sales director of the second-tier energy storage cell enterprise specially consulted the relevant departments on the export tax rebate rules. Although there is no export business at present, overseas orders may be considered in the future. The tax bureau replied that all consumption tax in the production link can be refunded for exported lithium battery products: as long as the products are declared for export, the taxes paid in China will be fully refunded. This means that once an enterprise obtains overseas orders, this part of shipments can be exempted from the corresponding tax burden.
Su Ming is drafting new framework contract clauses. All multi-year long-term agreements need to add consumption tax price adjustment clauses, and set different prices according to the policy implementation period. After the sodium battery tax exemption expires at the end of 2028, the industry will face another round of adjustments, and the rules must be clearly stated in the contract in advance. There is still time before September 1, but the ledgers, contracts and calculation sheets in the finance office are being updated every day.
Who Will Bear the New Costs
The third quarter is the peak stocking period for new energy vehicle enterprises, and Zhou Hongyi's schedule is fully occupied by quotation communication with battery manufacturers.
He is in charge of battery procurement for three new-energy vehicle startups. All power batteries are purchased externally, and there is no self-built cell production capacity. After the aforementioned consumption tax policy was released on July 17, he held multiple rounds of consultations with many leading battery enterprises, and the core topic was who will bear the new consumption tax for batteries delivered after September.
The results of the negotiation are presented in layers.
For the stock long-term agreement orders finalized in the first half of the year, which are scheduled to be delivered successively from the third quarter to the end of the year, most contracts do not reserve tax price adjustment clauses. Leading battery enterprises insist that the original contract price remains unchanged, and this part of the new consumption tax cost can only be digested by the vehicle side for the time being.
For the fourth quarter procurement orders newly negotiated after the July new policy, the two parties have reached a tiered sharing plan. The new cost corresponding to the 2% tax rate is roughly implemented at 50% borne by the battery enterprise and 50% shared by the vehicle enterprise.
When docking with second-tier battery suppliers, the other party has relatively thin profits, and most of the negotiations resulted in 60% borne by the vehicle enterprise and 40% by the supplier. For some batteries supporting overseas shipment models, relying on the export tax rebate mechanism, battery manufacturers do not include taxes in the quotation, and the price of this part of orders has basically not changed.
Zhou Hongyi said that no battery enterprise is willing to cover the full tax, nor has there been an extreme case where the vehicle side is required to bear all the costs. All parties make some concessions to ensure that the stocking in the third quarter can proceed normally.
But at the same time, he is facing another pressure: he cannot easily raise the selling price of end vehicles, nor can he fully absorb the new costs.
To this end, he has built a multi-layer sharing plan: relying on the multi-supplier procurement system, split orders to different battery manufacturers, and use the price comparison space of second-tier suppliers to force leading battery manufacturers to make appropriate concessions. At the same time, cooperate with many battery enterprises to negotiate with cathode, copper foil and separator suppliers for a slight reduction in the price of main materials, and use upstream cost reduction to offset part of the battery tax. Inside the enterprise, the remaining cost increment is digested by optimizing the relevant packaging process and vehicle lightweighting, and improving manufacturing efficiency.
At present, there are sticking points in the implementation of this plan. In the first half of the year, most upstream materials such as lithium salt and electrolyte signed six-month price-locked long-term agreements, so there is little room for short-term price adjustment of upstream materials. The long-term agreements of leading battery manufacturers are highly binding, making it difficult to make large temporary concessions. The price war in the domestic new energy vehicle market is still ongoing. Once the end price is adjusted, it is easy to lose customers of cost-effective models. High-end models have the confidence to adjust prices, but the main high-volume models dare not raise prices easily.
Zhou Hongyi said that at present, they can only rely on multi-supplier price negotiation and process cost reduction to cope with the pressure. In the medium and long term, they rely on self-developed batteries to be put into use, but self-built production capacity will not accelerate expansion just for tax dividends. High equipment investment, long capacity ramp-up cycle, and great difficulty in process control are realistic thresholds that will not disappear because of a tax policy.
The pressure on the vehicle side is transmitted upstream along the industrial chain.
Chen Mo runs a small and medium-sized lithium iron phosphate processing plant in central China. Its products are mainly energy storage-grade lithium iron phosphate, and most of its customers are small and medium-sized energy storage cell factories and two-wheeler battery factories in the Yangtze River Delta, with only a small number of orders connected to leading battery enterprises.
Recently, he has successively received price reduction demands from some downstream battery enterprises. Most customers uniformly require a 1.5 percentage point reduction in supply prices, on the grounds that the new consumption tax has squeezed battery profits, and upstream materials need to share the costs together.
Different customers have different degrees of firmness. Long-term, large-volume energy storage cell factories are the most determined, insisting that prices must be reduced, otherwise they will divert orders. Some small two-wheeler battery manufacturers with scattered orders have weak bargaining power, and are willing to relax the price reduction demand to 1 percentage point. Based on the results of all negotiations, Chen Mo finally finalized a 0.8 to 1 percentage point reduction with most customers, and the overall profit concession only covers about 60% of the downstream demands. He dare not completely refuse to cut prices: small and medium-sized battery customers have many alternative small and medium-sized iron lithium suppliers, and it is easy to lose orders if he does not make concessions at all.
The market situation in the high-nickel ternary field is significantly different. According to the sales director of high-nickel ternary cathode at Ronbay Technology, this material is mostly used in high-end long-range vehicles, where vehicle enterprises have ample profit margins, and battery enterprises can pass most of the consumption tax costs to the vehicle side, without having to suppress the procurement price of cathode raw materials to guarantee revenue. Leading vehicle enterprises only negotiate for scattered procurement discounts, and do not force price reductions. Only a small number of medium-nickel ternary orders adapted to low-end hybrid vehicles require a slight price reduction from the downstream battery side, and such orders account for a low proportion. On the whole, the situation where downstream parties use tax pressure to force price reductions is far less common than in the lithium iron phosphate track.
The transmission chain is now clear. Taxes are passed from vehicles to batteries, and from batteries to materials, and the materials cannot be passed further upstream. Each layer has absorbed part of the cost, and the ones that bear the most in the end are small and medium-sized cell manufacturers and small and medium-sized material suppliers with no bargaining power.
The Sodium Battery Tax Reform Window
While mid-stream cell manufacturers and small and medium-sized material suppliers are under pressure, people on another track are feeling a different rhythm.
Su Ming feels that the number of customer inquiries is increasing. His sodium battery new material enterprise focuses on supporting sodium-ion cathode and electrolyte. After July 20, he and his team completed sample delivery