China is changing its approach to battery taxes for the first time in over a decade. Starting September 2026, lithium-ion batteries will face a 2% consumption tax. This tax will rise to 4% in September 2027. Solar cells will follow a similar path, with a 2% tax beginning April 2027 and increasing to 4% in April 2028.
Interestingly, sodium-ion batteries and solid-state batteries will remain tax-free through at least the end of 2028. This move reflects China’s strategy to support newer battery technologies while taxing older, more mature ones. Sodium battery technology is a key area of investment for China, seen as a strategic alternative to lithium.
The tax hike will raise costs for major battery makers like CATL and BYD. These companies dominate China’s electric vehicle (EV) battery market. The tax could push up prices for EVs, especially since China offers over 200 battery-powered models priced below $25,000. Higher battery costs could affect affordability for many buyers.
Profit Booms Amid Rising Demand
While taxes bite, China’s top lithium producers are enjoying huge profits. Tianqi Lithium expects net profits between 2.85 billion and 4.25 billion yuan for the first half of 2026. That’s a year-on-year jump of 3,276% to 4,935%. Ganfeng Lithium Group forecasts net profits from 3.65 billion to 4.6 billion yuan after a loss last year.
These gains come from growing global demand for renewable energy and energy storage. The rise of new energy industries and downstream markets is pushing lithium prices higher. These companies are riding the wave of the energy transition boom, with profit surges of up to 50 times compared to previous years.
Challenges from Bigger EVs and Export Controls
China’s car market is shifting toward larger EVs. Six out of ten new cars launched in the first half of 2026 are over five meters long. Compact models under 4.5 meters dropped from 13% to just 2%. These supersized EVs weigh around three tons and strain China’s road infrastructure.
Heavier EVs are damaging roads and cutting fuel tax revenue. This tax revenue traditionally funds road maintenance. But as EVs replace fuel-powered cars, tax income is shrinking. The government faces a tricky balance between promoting EV adoption and funding infrastructure upkeep.
China is also tightening controls on rare-earth exports. These materials are critical for batteries and electronics. The International Energy Agency warns that export restrictions could disrupt global supply chains. A White House economic advisor said, “This will not end well unless the West unites.”
Meanwhile, Chinese brands are expanding overseas. In May 2026, one in ten new cars registered in the EU was from a Chinese maker. A new Spanish factory by CATL and Stellantis is under construction and will bring workers from China. This shows China’s growing influence in global EV and battery markets.
China’s new battery tax plan clearly targets mature battery technologies with overcapacity problems. Meanwhile, it protects emerging technologies like sodium-ion and solid-state batteries. The government is steering the industry toward the next generation of energy storage.
This shift will affect manufacturers, consumers, and the global energy market. Higher taxes may slow lithium battery growth in China but boost alternatives. Meanwhile, profits for top lithium firms will likely stay strong as the energy transition accelerates worldwide.
Based on
- China will tax lithium and solar batteries for the first time in a decade, but sodium batteries stay exempt — thenextweb.com
- China’s top lithium firms project up to 50-fold profit surge amid energy transition boom | South China Morning Post — scmp.com
- China’s giant EVs are damaging roads without paying for repairs – The Japan Times — japantimes.co.jp
- China rare-earth export curbs risk $6.5 trillion in production | Semafor — semafor.com
- Spain welcomes Chinese EVs | Semafor — semafor.com
