As the sweeping retreat of full-chain "tax subsidies" unfolds, are new energy vehicles about to rise in price?

Recently, the Ministry of Finance, General Administration of Customs, and State Taxation Administration jointly issued the "Announcement on Adjusting Some Battery Consumption Tax Policies", which will resume levying consumption tax on mature energy storage, power, and photovoltaic batteries in phases, while granting a phased tax exemption window for sodium-ion, solid-state, fuel cells, and new types of photovoltaic batteries.

This new policy ends the universal tax exemption for batteries that has been in place for more than a decade. Together with the adjustments to the new energy vehicle purchase tax and new energy vehicle and vessel tax regulations launched this year, it forms part of the country's new energy tax system reform. The successive introduction of multiple new tax policies means that the entire new energy vehicle industry chain is bidding farewell to the era of universal subsidies, and the industry chain will usher in a new round of reshuffling and upgrading.

01

Stepped Reduction of Tax Incentives

From the perspective of policy adjustment logic, the battery consumption tax, like the new energy vehicle purchase tax, will gradually "phase down" subsidies through phased taxation. For widely used and technologically mature lithium-ion batteries, primary lithium batteries, nickel-metal hydride batteries, and all-vanadium flow batteries, a 2% consumption tax will be levied starting from September 1, 2026. After a one-year transition period, the tax rate will increase to 4% from September 1, 2027. For photovoltaic batteries (also known as solar cells) whose production capacity has continued to expand in recent years, a 2% consumption tax will be levied starting from April 1, 2027; a one-year transition period is also set, and the tax rate will increase to 4% from April 1, 2028.

For cutting-edge innovative categories such as "sodium-ion batteries, solid-state batteries, fuel cells, and perovskite cells, tandem cells, gallium arsenide cells among photovoltaic batteries", a phased tax exemption will be implemented, with consumption tax exempted from September 1, 2026 to December 31, 2028.

The above three differentiated taxation standards reflect the policy logic of resuming taxation on mature products in phases and extending the tax exemption window for innovative technologies. This not only helps the industry achieve a smooth transition but also avoids impacting new technology batteries that are still in the industrialization breakthrough stage.

The background for the adjustment of the battery consumption tax is very clear: China included batteries in the consumption tax scope in February 2015, with a benchmark tax rate of 4%. However, a large-scale tax exemption list was set up to cultivate the new energy industry chain, including mercury-free primary batteries, nickel-metal hydride batteries, primary lithium batteries, lithium-ion batteries, photovoltaic (solar) cells, fuel cells, and all-vanadium flow batteries, all of which are exempt from consumption tax; only lead-acid batteries with high pollution have been subject to a fixed 4% tax rate since 2016. After more than a decade of support, the production capacity of lithium-ion batteries, crystalline silicon photovoltaic cells and other products has grown to the world's largest, with a complete industrial chain, and their commercial applications and market competition are already very mature.

Universal tax incentives can no longer accurately target next-generation innovative technologies. Against this backdrop, the three ministries and commissions launched the optimization of the battery consumption tax, redefining the tax orientation, restricting and phasing out low-end production capacity, and encouraging and accelerating the research and development of cutting-edge low-carbon technologies.

02

The Decade of Tax Dividend Period Comes to an End

Lithium-ion batteries and other products widely used in new energy vehicles are the first to resume taxation, which is consistent with the overall direction of tightening the new energy tax system.

Under the leadership of the Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology, the new energy vehicle purchase tax has been adjusted from full exemption to half collection since January 1 this year, while the maximum tax reduction limit has been lowered, with a maximum tax reduction of 15,000 yuan for a single new energy passenger car. On July 3, the three ministries and commissions issued an announcement, clarifying that starting from January 1, 2027, the policy of levying a 50% reduction in vehicle and vessel tax on energy-saving vehicles will be canceled, and the policy of exempting pure electric commercial vehicles, plug-in (including range-extended) hybrid vehicles, and fuel cell commercial vehicles from vehicle and vessel tax will be abolished.

In terms of time cycle, the new energy vehicle and vessel tax exemption policy, the new energy vehicle purchase tax exemption policy, and the battery consumption tax exemption policy were launched in January 2012, September 2014, and February 2015 respectively, covering more than a decade from the initial budding stage to the explosive growth of new energy vehicles. From 2015 to 2025, a large-scale universal tax exemption was implemented in the domestic new energy industry chain, such as full exemption from lithium-ion battery consumption tax, full exemption from new energy vehicle purchase tax, and full exemption from vehicle and vessel tax for pure electric commercial vehicles. These policies were once favorable factors driving the rapid development of the new energy vehicle industry.

Now that the three types of tax incentives are entering the countdown to exit, it clearly demonstrates the policy orientation: when the industry matures, universal incentives will be phased out in an orderly manner, to achieve fairness in the taxation system for fuel and electric vehicles, eliminate low-end production capacity through tax leverage, provide targeted support for cutting-edge innovation, and improve the green fiscal and taxation system.

The battery consumption tax targets upstream battery manufacturing and cell technology iteration, the purchase tax targets automobile consumption and vehicle energy-saving upgrading, and the vehicle and vessel tax covers the vehicle usage link. The three types of tax adjustments cover the entire chain of "production, purchase, and ownership" of new energy vehicles.

Supported by more than a decade of universal tax exemption policies, China's new energy vehicle and battery industries have achieved leapfrog development. At present, the penetration rate of new energy passenger cars has exceeded 60%, entering a transition period of stock competition, quality improvement, and upgrading. At the same time, long-term zero tax has lowered the industry's cost threshold, leading to structural contradictions such as low-price internal competition and weak profitability for passenger car companies. This is the main reason why the fiscal and taxation authorities implement the phase-out of incentives and restart the tax adjustment function.

According to the upcoming battery consumption tax adjustment, based on the ex-factory price of mainstream LFP cells at 0.35-0.40 yuan/Wh, for a passenger car equipped with a 60kWh lithium battery, the battery cost will increase by about 400-700 yuan (2% tax rate) and 800-1200 yuan (4% tax rate) respectively. This means that the costs of both battery companies and vehicle manufacturers will rise. Leading battery manufacturers and vehicle companies that independently develop batteries in-house can moderately pass on costs to downstream parties, with limited pressure on profits. However, small and medium-sized battery manufacturers and car companies that purchase batteries externally face the risk of cost being directly squeezed by taxes.

In addition, in accordance with the regulation that "taxpayers' self-produced taxable battery products for continuous production of taxable batteries/automobile products are not subject to consumption tax", if a car manufacturer's self-produced batteries are directly installed for its own use, the battery consumption tax can be exempted. This may force vehicle manufacturers to accelerate independent battery R&D and promote the industry to move towards industrial vertical integration. At the same time, the two-year tax exemption window reserved for solid-state batteries and other new technologies is expected to accelerate the research and development of related technologies in these emerging fields.

This article is from the WeChat official account "Economic Observer", written by LIU Xiaolin, and published with authorization from 36Kr.