Guangzhou (JLC), July 21, 2026--China will phase in adjustments to its consumption tax policy on batteries from September 1 this year, which will lead to a moderate increase in battery costs for new energy vehicle (NEV) manufacturers, but is unlikely to significantly alter the cost gap between conventional fuel vehicles and NEVs.
Under the new rules released by the Ministry of Finance, the General Administration of Customs and the State Taxation Administration, mercury-free primary batteries, nickel-metal hydride batteries, lithium primary batteries, lithium-ion batteries and all-vanadium redox flow batteries will be taxed at 2% from September 2026 and at 4% from September 2027. Photovoltaic cells will face a 2% tax from April 2027 and will be taxed 4% from April 2028.
Meanwhile, certain new-technology batteries will be temporarily exempt from consumption tax from September 2026 to December 2028.
As NEVs primarily use lithium-ion batteries, implementing a 2% tax rate will push up the cost of mainstream models by 500-1,200 yuan, while a 4% tax rate will result in a cost increase of 1,000-2,400 yuan. Given the current intense price competition among vehicle manufacturers, the increase in battery costs is likely to be shared between battery manufacturers and vehicle manufacturers in the short term. Consequently, the retail prices of NEVs are expected to stay unchanged or gain modestly.
Comparing the full lifecycle costs of traditional fuel-powered vehicles and NEVs, the new policy slightly narrows the economic advantage of electric vehicles. Following the imposition of the battery tax, the average annual implicit cost of electric vehicles will grow by several hundred yuan. However, for family cars in the same price bracket, charging will still save thousands of yuan annually compared to refueling, meaning that fuel-powered vehicles will remain at a disadvantage.
