China is scaling back incentives related to electric vehicles, having reinstated the consumption tax on lithium-ion batteries in September and planning to end vehicle purchase tax exemptions in 2028.
As the country’s demand slump dims the growth outlook, automakers will have to absorb the costs once covered by incentives if they are unable to pass them on to customers. This could spark a reshuffling of China’s automotive landscape.
In July, Chinese authorities said lithium-ion batteries used in new energy vehicles—which include EVs and plug-in hybrids—would become subject to a 2% consumption tax once again, effective September 1. The rate rises to 4% in September 2027.
Newer categories such as sodium-ion and solid-state batteries have yet to see widespread uptake. Beijing plans to continue tax breaks for these batteries, shifting development support to the cutting-edge technologies.
Tax breaks for lithium-ion batteries were introduced in 2015, making them exempt from the 4% consumption tax. China aimed to support development of the new energy vehicle industry.
This marks the first change to the policy in 11 years. Many companies are considered likely to pass on the cost to customers. Battery maker Eve Energy plans to add the 2% tax to the sales price for its batteries, Chinese media report.
Rebates for EV battery exporters also were reduced in April to 6% from 9%, and will be eliminated altogether in January.
China ranked first globally in 2025 for new energy vehicle sales, including exports, for the 11th year running, according to an industry body. New energy vehicles accounted for 48% of all Chinese new-vehicle sales, a rapid jump from 5% in 2020.
Government support and rapid market growth have made manufacturers hypercompetitive, releasing many new models. The changes to incentives suggest Beijing wants to encourage independent growth now that the market is somewhat established.
Authorities also plan to eliminate tax breaks on new-vehicle purchases, directly impacting prices. From 2014 through the end of 2025, the 10% tax on purchases of new vehicles was waived completely for new energy vehicles. But since January, such purchases have been taxed at 5%. In January 2028, the rate increases to 10%, the same as for vehicles that run on internal combustion engines.
These taxes will boost consumer prices. Combined with the decline in consumer spending amid China’s real estate slump, reduced incentives have become a headwind for domestic new energy vehicle sales, which fell 10% on the year in the first half of 2026.
The reduced incentives, including for batteries, are likely to affect the supply chain.
“The changes are a competitive advantage for the top competitors,” said an executive at major battery maker Contemporary Amperex Technology (CATL).
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.
