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China to levy consumption tax on EV batteries and solar cells
The new battery consumption tax starts Sept. 1 at 2.0%, rising to 4.0% the year after, and analysts estimate it could add up to US$147 per EV as margins face pressure.
China is ending long-standing tax exemptions for lithium-ion batteries and solar cells, announcing that it will levy a consumption tax on both for the first time in more than a decade, a move analysts say could raise EV production costs and add pressure amid China’s efforts to curb overcapacity and price wars.
According to the Ministry of Finance, the lithium-ion battery consumption tax will be set at 2.0% starting Sept. 1, with solar cells not taxed at 2.0% until April 1. In both cases, the rates are scheduled to rise to 4.0% one year after their respective start dates.
The change follows China’s earlier 4.0% battery consumption tax introduced in 2015, which was later adjusted to exempt lithium-ion batteries and solar cells to support nascent industries. SCMP Economy cites a veteran auto industry analyst, Jia Xinguang, who said subsidies were needed initially, but that Beijing now signals confidence the sectors have outgrown preferential treatment.
SCMP Economy also reports that analysts estimate the levy could add about 1,000 yuan, or roughly US$147, to the cost of producing an EV once the rate reaches 4.0%. That estimate is tied to assumptions about typical China electric cars using battery packs of 50 to 100 kilowatt-hours, and battery cell prices of around 0.35 to 0.40 yuan per watt-hour, according to calculations by Cui Dongshu of the China Passenger Car Association.