Reinstated consumption tax intensifies divergence in the battery industry, with CATL showing the strongest resilience

Overview

This report assesses the impact of the battery product consumption tax policy adjustment announced on 2026-07-17 by China’s Ministry of Finance, General Administration of Customs, and State Taxation Administration. The core of the policy is the phased cancellation of a roughly decade-long consumption tax exemption for mature battery products: from 2026-09-01, a 2% consumption tax will be levied on primary lithium batteries and lithium-ion batteries, and from 2027-09-01 it will return to the standard 4% rate; at the same time, to support technological innovation, next-generation technologies such as sodium-ion batteries, solid-state batteries, fuel cells, and advanced photovoltaic technologies will be temporarily exempt from 2026-09-01 to 2028-12-31.

Core views

Goldman Sachs’ core judgment is that the policy change is manageable for industry leaders, but more challenging for second- and third-tier battery makers with high domestic sales exposure and lower unit profitability, and it will reinforce the trend of market share concentration toward leading players. CATL, with overseas revenue accounting for more than 30% and 2025 net profit per unit of about Rmb109/kWh, higher than the combined level of other covered companies, is viewed as the most resilient name in coverage. EVE and Zenergy are also less affected due to relatively higher unit profitability; second- and third-tier manufacturers such as CALB and REPT are more earnings-sensitive, while Gotion faces a risk of turning loss-making due to low domestic unit profitability.

Analysis framework

The report uses a simplified scenario analysis centered on whether the tax burden can be passed through to customers, with main scenarios including no pass-through and 50% pass-through, and evaluates the profit impact for 2026E-2028E in conjunction with the tax rate schedule across different years. For downstream sectors, it assumes full pass-through of the tax burden and separately evaluates changes in end prices, driver economics, and project IRRs for passenger vehicles, electric heavy-duty trucks, and battery energy storage system projects.

Methodology notes

• Tax burden pass-through scenario analysisConsumption tax reinstatement impact assessment

  No pass-through and 50% pass-through

  The report assumes the consumption tax applies to domestic sales and compares earnings sensitivity when companies do not pass the tax burden to customers versus when they pass through 50% of it.

• Unit economics analysisComparison of unit tax burden and net profit per unit

  Rmb/kWh tax burden pressure

  A 4% consumption tax corresponds to a unit tax burden of about Rmb11–24/kWh for covered battery companies, which is compared with 2025 net profit per unit of Rmb8–109/kWh to judge different companies’ ability to absorb the tax burden.

• Downstream impact analysisFull pass-through scenario

  End prices, operating payback period, and project IRR

  Under a scenario where the tax burden is fully passed through downstream, the report separately estimates the impact on passenger vehicle prices, the payback period for incremental costs of electric heavy-duty trucks, and the decline in IRR for a 400MWh energy storage project.

• Factor frameworkGS Factor Profile

  Growth, Financial Returns, Multiple, and Integrated percentile comparison

  Goldman Sachs discloses that its factor framework compares stocks versus the market and sector peers on growth, financial returns, valuation multiples, and integrated metrics, but the main conclusions of this report are primarily derived from policy tax burden sensitivity analysis.

Asset mapping & comparison

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

• CATL (300750.SZ; 3750.HK)

  Core beneficiary / most resilient name

  Strengths

  Overseas exposure exceeds 30%, and 2025 net profit per unit is about Rmb109/kWh, with an earnings buffer significantly stronger than peers.

  Weaknesses

  Domestic sales will still be affected by the reinstated consumption tax, and the ultimate pass-through arrangement depends on negotiations with customers.

  Comparison

  Compared with second- and third-tier manufacturers, CATL has the smallest earnings downside; the report maintains Buy A/H.

  Risks

  If the tax burden cannot be passed through and domestic demand is weaker than expected, profits still face downside pressure.

• Second- and third-tier battery manufacturers such as CALB and REPT

  Higher policy pressure

  Strengths

  They have some scale and growth potential, but their ability to withstand the tax burden depends on unit profitability and customer mix.

  Weaknesses

  They have high domestic sales exposure and lower unit profitability, making them more sensitive to the reinstated consumption tax.

  Comparison

  Earnings downside is significantly larger than CATL’s, at 8%–41% under 50% pass-through and up to 15%–82% under no pass-through.

  Risks

  Margin compression, weaker order pricing power, and further market share absorption by industry leaders.

• Gotion

  High-sensitivity risk name

  Strengths

  The report does not emphasize specific advantages.

  Weaknesses

  Domestic unit profitability is relatively low compared with peers.

  Comparison

  More likely than other covered companies to turn loss-making under the tax burden shock.

  Risks

  If the tax burden cannot be passed through to customers, there is a risk of losses.

• EVE, Zenergy

  Relatively low-sensitivity names

  Strengths

  Relatively stronger unit profitability, enabling better absorption of the tax burden shock.

  Weaknesses

  They still face rising policy costs and uncertainty in customer negotiations.

  Comparison

  Less affected than highly sensitive second- and third-tier companies such as CALB and REPT.

  Risks

  If industry price competition intensifies, the cushion from higher unit profitability may weaken.

• Passenger vehicles

  Limited downstream impact

  Strengths

  Under full pass-through, the impact on end prices is about 1%–2%, which is relatively manageable overall.

  Weaknesses

  Budget models are more price-sensitive.

  Comparison

  Compared with BESS projects, passenger vehicles are less affected by the tax burden shock.

  Risks

  If end demand is sensitive to price increases, sales of low-end models may come under pressure.

• Electric heavy-duty trucks (eHDT)

  Limited downstream impact

  Strengths

  Short-haul electric heavy-duty trucks can generate about Rmb8k more profit per month than diesel heavy-duty trucks, enough to recover the fully passed-through incremental tax cost in about one month.

  Weaknesses

  Economics are still affected by variables such as fuel prices, electricity prices, and operating mileage.

  Comparison

  Compared with BESS, eHDT has a faster cost recovery period.

  Risks

  If the diesel-fuel price gap narrows or operating intensity is insufficient, the cost recovery period may lengthen.

• Battery energy storage systems (BESS)

  Most sensitive downstream segment

  Strengths

  Long-term demand still depends on energy storage installations and power system needs.

  Weaknesses

  Project return thresholds are tight, making them sensitive to higher battery costs.

  Comparison

  Under a full pass-through scenario, the IRR of a 400MWh project falls by 0.3 percentage points, showing greater sensitivity than passenger vehicles and eHDT.

  Risks

  Projects close to the return threshold may fall below required returns, leading to delays or slower demand.

Key data

• Consumption tax effective schedule2% from 2026-09-01, 4% from 2027-09-01Applies to mature battery products such as primary lithium batteries and lithium-ion batteries.
• Temporary exemption scope2026-09-01 to 2028-12-31Sodium-ion batteries, solid-state batteries, fuel cells, and advanced photovoltaic technologies are temporarily exempt.
• Unit tax burden at 4% tax rateRmb11–24/kWhEstimated range for covered battery companies.
• 2025 net profit per unitRmb8–109/kWhRange for covered companies, with CATL at the high end.
• CATL overseas exposureMore than 30%Higher overseas revenue exposure reduces sensitivity to the domestic consumption tax.
• CATL earnings downside50% pass-through: 1%–6%; no pass-through: 2%–13%Corresponding downside impact versus current GSe for 2026E-2028E.
• CALB and REPT earnings downside50% pass-through: 8%–41%; no pass-through: 15%–82%Reflects the higher sensitivity of second- and third-tier manufacturers.
• Passenger vehicle end-price impact1%–2%Assumes the 4% battery consumption tax is fully passed through; budget models may be more affected.
• Incremental cost for electric heavy-duty trucksAbout Rmb8k/vehicleShort-haul electric heavy-duty trucks generate about Rmb8k more profit per month than diesel trucks, so the incremental cost can be recovered in about one month.
• IRR impact on a 400MWh BESS projectDown 0.3 percentage pointsUnder a full pass-through scenario, some projects near the return threshold may fall below required returns.

Impact & implications

The policy reinstatement will increase the tax burden on the domestic sales of mature battery products and may create advance purchasing demand in the short term as the implementation date approaches; in the medium term, it may squeeze the profit margins of low-efficiency, domestically oriented manufacturers and increase the difficulty of absorbing or passing through the tax burden. From an investment perspective, industry leaders are relatively advantaged by stronger earnings buffers, overseas exposure, and pricing power, and the market share concentration trend may continue. Downstream impacts are differentiated: passenger vehicles and electric heavy-duty trucks face limited pressure under a full pass-through scenario, while energy storage projects are more sensitive to rising costs because of tighter return thresholds.

Risks

• The final tax pass-through ratio depends on negotiations between battery manufacturers and customers, and may differ from the report’s simplified scenarios.
• Manufacturers with high domestic sales exposure and lower unit profitability face greater downside earnings risk.
• If industry competition intensifies, manufacturers’ ability to pass through the tax burden may weaken, putting further pressure on margins.
• A decline in energy storage project IRR may push some near-threshold projects below required return levels.
• Advance purchasing before policy implementation may pull forward subsequent demand.
• The temporary exemption arrangement for next-generation battery technologies runs through the end of 2028, and the continuity of policy thereafter remains to be seen.

What to watch

• Whether demand is pulled forward before the 2% tax rate takes effect on 2026-09-01.
• Pass-through ratios and order pricing changes after the tax rate rises to 4% on 2027-09-01.
• Management commentary during the 2026 second-quarter earnings season on the consumption tax impact and customer negotiations.
• Changes in domestic sales exposure, unit profitability, and gross margin for companies such as CATL, EVE, Zenergy, CALB, REPT, and Gotion.
• BESS project returns, tender prices, and project delays.
• Commercialization progress of temporarily exempt technologies such as sodium-ion, solid-state, and fuel cells.