China further reduces tax incentives for EVs

China is gradually phasing out tax incentives for electric cars and batteries. Since September, the previously announced consumption tax on lithium-ion batteries has been in effect, and further benefits will be removed in 2027.

Since 1 September, lithium-ion batteries have been subject to a consumption tax of two per cent. This will rise to four per cent in September 2027. The change was already announced in July and ends a tax exemption that has been in place since 2015.

In contrast, sodium-ion and solid-state batteries, as well as fuel cells, will remain exempt from consumption tax until the end of 2028. China is thus partially shifting tax incentives away from the now-established lithium-ion technology towards alternative technologies.

The immediate additional costs due to the new battery tax are likely to remain limited for the time being. CarNewsChina calculates that for an electric car with a 60-kWh battery, the two per cent tax would result in additional battery costs of around 438 yuan, or $62 USD. With the increase to four per cent, this would rise to around 876 yuan, or $125. However, the calculation is based on prices for Chinese LFP storage cells and is therefore merely an illustrative example.

The battery tax is just part of a broader realignment of China’s incentive policy: since the beginning of 2026, electric vehicles and plug-in hybrids (grouped under the NEV designation in China) have been subject to a purchase tax reduction of 50 per cent instead of a full exemption. The effective tax rate is thus five per cent, with the relief capped at 15,000 yuan per vehicle.

Furthermore, additional tax benefits for vehicle and vessel taxes are set to be abolished on 1 January 2027. These include battery-electric commercial vehicles, plug-in hybrids, range extenders, and fuel cell commercial vehicles. For purely electric passenger cars, however, this tax will remain unchanged.

China is thus gradually withdrawing from tax incentives that have supported the development of its NEV market for years. However, this does not mean the end of state support. Among other things, the state continues to invest in charging and battery-swapping infrastructure. In addition, the remaining tax benefits generally also apply to electric vehicles produced in China by foreign manufacturers.