China will tax lithium and solar batteries for the first time in a decade, but sodium batteries stay exempt

China will impose a consumption tax on lithium-ion and solar batteries for the first time in a decade, marking a policy shift as Beijing seeks to rein in overcapacity and destructive price wars in industries it spent years subsidising into global dominance. A 2% tax on lithium-ion batteries takes effect this September, rising to 4% from September 2027. Solar cells face the same trajectory starting April 2027, reaching 4% in April 2028.

Beijing exempted both technologies from the consumption tax in 2015 to accelerate the clean energy transition. The strategy worked: Chinese manufacturers now dominate global markets for EV batteries and solar panels. But years of relentless capacity expansion have triggered severe overcapacity and cut-throat competition at home. Authorities summoned leading battery makers earlier this year to warn against unchecked expansion and destructive pricing.

The most telling detail is what stays exempt. Sodium-ion batteries, solid-state batteries, and perovskite solar cells will remain tax-free through at least the end of 2028. China is investing heavily in sodium battery technology as a strategic alternative to lithium, which it imports at a 75% rate. The exemption structure sends a clear signal: Beijing is taxing the mature technologies where overcapacity is the problem while protecting the emerging ones it wants to scale next.

The tax will raise costs for battery makers like CATL and BYD at a time when margins are already thin. It could also push up EV prices in China, where over 200 battery-powered models are priced below $25,000. The AI-driven memory shortage has already pushed up consumer electronics prices through supply chain pressure, and the battery tax adds a direct policy-driven cost increase on top. For Chinese battery makers selling into Europe and the US, where tariffs are already squeezing margins, the domestic tax is another headwind.