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

Overview

This report is Nomura's quick take on tax policy changes in China's battery industry. On July 17, 2026, China's Ministry of Finance, General Administration of Customs, and State Taxation Administration announced adjustments to the consumption tax policy for certain battery products, with products such as lithium-ion batteries to be taxed in phases. The report focuses on evaluating the policy's impact on battery costs, vehicle costs, and the profitability of leading and second-tier battery companies.

Core views

The core view is that the new consumption tax is not a major surprise and will have a limited impact on the profitability of leading battery companies. Nomura expects that under the 2% tax rate phase, the additional cost will be relatively low compared with total vehicle manufacturing costs; leading companies such as CATL can cushion the impact by passing costs on to downstream customers or continuing to optimize production costs. In contrast, second-tier battery manufacturers may face more evident margin pressure due to weaker bargaining power. Companies with higher export exposure and those positioned in new technologies such as sodium-ion and solid-state batteries may benefit relatively more.

Analysis framework

The report combines policy event interpretation with unit cost estimation: it first reviews the implementation timetable and applicable categories for the consumption tax, then assumes a cell price of CNY400/kWh to estimate the incremental battery unit cost corresponding to a 2% consumption tax, further estimates the per-vehicle cost increase based on a 60kWh battery pack, and finally assesses differences in impact based on companies' bargaining power, cost optimization capability, export exposure, and technology roadmap.

Methodology notes

• Policy impact analysisConsumption tax cost pass-through analysis

  Transmission of tax rate changes to unit costs and corporate profit margins

  By applying the consumption tax rate to battery unit prices, the report estimates the added cost per kWh and assesses whether companies can absorb the impact through downstream cost pass-through or internal cost reduction.

• Equity valuationP/E and PEG valuation

  25x 2027 forecast EPS and FY26-28 earnings CAGR

  The report discloses that CATL's target price of CNY612.00 is based on 25x 2027 forecast EPS of CNY24.47, corresponding to FY27F PEG of about 1.25x, with the CSI300 as the benchmark index.

Asset mapping & comparison

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

• CATL (300750 CH)

  Key mentioned company and rating subject

  Strengths

  It has strong bargaining power, may pass costs on to downstream customers, and can cushion the impact of the consumption tax through production cost optimization.

  Weaknesses

  It is still affected by raw material prices, global OEM shipments, and industry competition.

  Comparison

  Compared with second-tier battery manufacturers, CATL is expected to be less affected by the consumption tax.

  Risks

  Raw material price increases stronger than expected, lower-than-expected shipments to global OEMs, and intensified competition in China and overseas markets.

• Second-tier battery companies

  Comparison group for policy impact

  Strengths

  If they have export sales or new technology positioning, they may partially cushion the impact of the tax burden.

  Weaknesses

  They have weaker bargaining power, lower ability to pass through costs, and may face greater margin pressure.

  Comparison

  Compared with leading companies, second-tier companies are more likely to bear earnings pressure from the consumption tax.

  Risks

  Difficulty passing through the tax burden, intensified price competition, and insufficient room for cost optimization.

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

  Beneficiaries of tax exemption for new technologies

  Strengths

  Related products remain tax-exempt from September 1, 2026 to December 31, 2028, giving them a relative policy advantage.

  Weaknesses

  There is still uncertainty around commercialization progress, mass-production costs, and customer adoption pace.

  Comparison

  Compared with traditional lithium-ion batteries, new-technology batteries enjoy a tax advantage during the exemption window.

  Risks

  Insufficient technological maturity, mass production falling short of expectations, and changes in tax arrangements after the policy window expires.

Key data

• Consumption tax rate for products such as lithium-ion batteries2% starting September 1, 2026; 4% starting September 1, 2027Applicable to products such as mercury-free primary batteries, nickel-hydrogen batteries, lithium primary batteries, lithium-ion batteries, and vanadium redox flow batteries.
• Consumption tax rate for solar batteries2% starting April 1, 2027; 4% starting April 1, 2028The report discloses that solar batteries will also be subject to phased consumption tax.
• Tax exemption window for new technologiesSeptember 1, 2026 to December 31, 2028Sodium-ion batteries, solid-state batteries, fuel cells, as well as perovskite, tandem, and gallium arsenide solar batteries, remain tax-exempt.
• Unit cost corresponding to 2% consumption taxabout CNY7/kWhBased on the assumption of a cell price of CNY400/kWh.
• Per-vehicle cost increase for a 60kWh battery vehicleabout CNY400-500The report believes this is relatively low compared with total vehicle manufacturing costs.
• CATL current priceCNY360.00（2026-07-17）The table discloses the price of Contemporary Amperex Technology (300750 CH).
• CATL target priceCNY612.00The valuation method is 25x 2027F EPS of CNY24.47.
• CATL ratingBuyThe industry rating is N/A, and the disclosed item is A10.

Impact & implications

The policy may raise the nominal cost of lithium-ion batteries, but the short-term earnings impact on leading companies is limited. The effect across the industry chain is likely to be more structural: leading battery manufacturers, with stronger pricing power, scale advantages, and cost-reduction capabilities, are better positioned to absorb the tax burden; second-tier companies face greater gross margin pressure; and companies with high export exposure and leading positions in new technologies may benefit relatively more, because some new-technology batteries are exempt from consumption tax during the policy window.

Risks

• Raw material prices rise more than expected.
• Shipments to global OEM customers come in below expectations.
• Competition in China's and overseas battery markets intensifies.
• After the consumption tax rises from 2% to 4%, margin pressure may increase if costs cannot be passed through.
• Changes in implementation details or the scope of tax exemptions may alter the degree to which companies benefit.

What to watch

• Price pass-through after the formal implementation of the 2% consumption tax on products such as lithium-ion batteries on September 1, 2026.
• The outcome of renewed bargaining between battery manufacturers and downstream automakers around the tax rate increase to 4% on September 1, 2027.
• Whether leading companies such as CATL can maintain margins through cost reduction and product mix optimization.
• Whether second-tier battery companies come under pressure in gross margin and order share.
• Mass-production progress and customer adoption speed of tax-exempt new technologies such as sodium-ion and solid-state batteries.