China plans to levy a consumption tax on lithium-ion batteries, with limited impact on leading battery makers

Overview

This report is a quick commentary on policy changes in China's battery industry. The core event is that relevant Chinese authorities announced adjustments to the consumption tax policy for certain battery products. Mercury-free primary batteries, nickel-metal hydride batteries, lithium primary batteries, lithium-ion batteries, and all-vanadium redox flow batteries will be subject to a 2% consumption tax from September 1, 2026, rising to 4% from September 1, 2027. Solar batteries will be subject to 2% from April 1, 2027, rising to 4% from April 1, 2028. Certain new technology products will remain exempt from consumption tax from September 1, 2026 to December 31, 2028.

Core views

Nomura believes the new policy is not a major surprise to the market, as other tax incentives for the EV and battery industries had already been phased out gradually. For lithium-ion batteries, the unit cost increase brought by the 2% tax rate is manageable, and the increase in vehicle-level cost is also relatively limited. Leading battery makers, especially CATL, are expected to offset part of the impact through cost pass-through or production efficiency optimization; second-tier manufacturers may face greater gross margin pressure due to weaker bargaining power.

Analysis framework

The report uses policy event interpretation, unit battery cost estimation, vehicle cost sensitivity analysis, and supply-chain bargaining power comparisons to assess the impact. The analytical focus is not the tax rate itself, but the burden-sharing ability of the additional tax across cells, battery makers, and downstream automakers, as well as whether different technology routes enjoy tax exemptions.

Methodology notes

• Policy impact analysisConsumption tax cost pass-through analysis

  Tax burden pass-through capability

  The report converts the 2% consumption tax into an additional cost of about CNY7/kWh, and further estimates a per-vehicle cost increase of CNY400-500 for a 60kWh EV, to assess the impact on battery makers' and automakers' profitability.

• Relative competitiveness analysisComparison of bargaining power between leaders and second-tier manufacturers

  Bargaining power and cost optimization

  The report believes leading battery makers can cushion the tax burden by passing costs downstream or optimizing production costs, while second-tier manufacturers may face greater gross margin pressure due to weaker bargaining power.

• Valuation methodP/E and PEG valuation

  25x 2027F EPS and FY27F PEG

  CATL's target price of CNY612.00 is based on 25x 2027F EPS of CNY24.47, corresponding to 1.25x FY27F PEG based on a FY26-28F earnings CAGR of 20%.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Contemporary Amperex Technology (300750 CH)

  A leading battery maker highlighted in the report, rated Buy with a target price of CNY612.00.

  Strengths

  Scale advantages, strong bargaining power, potential cost pass-through capability, and room to optimize production costs.

  Weaknesses

  Still faces cost increases from the consumption tax, as well as risks related to raw material prices, shipments, and competition.

  Comparison

  Compared with second-tier battery makers, leaders such as CATL are more likely to cushion the impact of the consumption tax on earnings.

  Risks

  Stronger-than-expected increases in raw material prices, slower-than-expected shipments to global OEMs, and intensified competition in China and overseas markets.

• Second-tier battery manufacturers

  Industry participants affected by the same consumption tax policy.

  Strengths

  If they have export sales or positions in new technologies, they may partially offset the tax burden impact.

  Weaknesses

  Weaker bargaining power and lower ability to pass through costs than industry leaders.

  Comparison

  Compared with leading companies such as CATL, second-tier manufacturers may face greater gross margin pressure.

  Risks

  Pressure to absorb the tax burden, price pressure from downstream customers, and intensified industry competition.

• Manufacturers related to sodium-ion and solid-state batteries

  Relevant new technology products are exempt from consumption tax from September 1, 2026 to December 31, 2028.

  Strengths

  Policy exemption may improve relative cost advantages.

  Weaknesses

  The report does not provide data on commercialization progress, scaling costs, or profitability.

  Comparison

  Compared with taxed lithium-ion batteries, new technology batteries enjoy tax advantages during the exemption period.

  Risks

  Uncertainty around technology maturity, commercialization pace, and customer adoption.

Key data

• Initial consumption tax rate for lithium-ion batteries and other products2%Applicable from September 1, 2026.
• Subsequent consumption tax rate for lithium-ion batteries and other products4%Applicable from September 1, 2027.
• Initial consumption tax rate for solar batteries2%Applicable from April 1, 2027.
• Subsequent consumption tax rate for solar batteries4%Applicable from April 1, 2028.
• Tax exemption window2026-09-01至2028-12-31New technology products such as sodium-ion batteries, solid-state batteries, fuel cells, and perovskite, tandem, and gallium arsenide solar batteries will continue to be exempt from consumption tax.
• Cell price assumptionCNY400/kWhUsed by Nomura to estimate the unit cost impact of the 2% consumption tax.
• Additional cost corresponding to 2% consumption tax约CNY7/kWhBased on the CNY400/kWh cell price assumption.
• Incremental battery cost per vehicle约CNY400-500Based on a 60kWh battery capacity assumption.
• CATL ratingBuyThe disclosure table shows Contemporary Amperex Technology (300750 CH) is rated Buy.
• CATL target priceCNY612.00The valuation method is based on 25x 2027F EPS of CNY24.47.
• CATL current priceCNY360.00The price date is 17-Jul-2026.

Impact & implications

The direct impact of the policy on the industry is to raise the cost of lithium-ion batteries and certain other battery products, but under Nomura's estimates, the effect on per-vehicle manufacturing cost is relatively limited. From an investment perspective, leading battery makers have stronger earnings resilience than second-tier manufacturers due to greater scale, bargaining power, and cost-reduction capabilities; meanwhile, manufacturers with higher export exposure and positions in tax-exempt new technologies such as sodium-ion and solid-state batteries may have relative advantages.

Risks

• Stronger-than-expected increases in raw material prices may weaken battery makers' profitability.
• Slower-than-expected shipments to global OEM customers may affect revenue and scale effects.
• Intensified competition in China and overseas markets may pressure prices and margins.
• Second-tier battery manufacturers have weaker bargaining power and may find it difficult to fully pass through the consumption tax cost to downstream customers.
• If implementation details of the policy or the way the tax burden is borne differ from expectations, the actual impact may be greater than the report's estimates.

What to watch

• Price pass-through after the formal implementation of the 2% consumption tax on lithium-ion batteries and other products on September 1, 2026.
• Changes in cost sharing between battery makers and automakers before and after the tax rate rises to 4% on September 1, 2027.
• Whether leading companies such as CATL can maintain gross margins through cost reduction or price increases.
• Gross margin pressure and order changes at second-tier battery makers.
• Commercialization progress of tax-exempt new technologies such as sodium-ion batteries and solid-state batteries.
• Industry impact after the phased taxation of solar batteries in April 2027 and April 2028.