China’s EV industry rose with the aid of tax breaks. What happens when they end?
Beijing is attempting to curb overcapacity and intense domestic price wars by ending a decade-long levy exemption on batteries
China will levy a consumption tax on lithium-ion batteries and solar cells for the first time in more than a decade, the Ministry of Finance announced on Friday. The tax would be set at 2 per cent for lithium-ion batteries – used in electric vehicles and energy storage – from September 1. Solar cells, however, would not be taxed at 2 per cent until April 1. Both rates are scheduled to rise to 4 per cent a year after their respective start dates.
China introduced a 4 per cent consumption tax on batteries in 2015, but made lithium-ion batteries and solar cells exempt to support the nascent industries.
“Subsidies were needed at the start. They are not needed now,” said Jia Xinguang, a veteran analyst of China’s auto industry, who saw the move as a sign of Beijing’s confidence that the sectors had outgrown preferential tax treatment.
The policy change would come at a cost to manufacturers, analysts said.
A typical electric car in China carries a battery pack with 50 to 100 kilowatt-hours of energy. With battery cells currently priced at around 0.35 to 0.40 yuan per watt-hour, the initial levy would lift that to roughly 0.36 to 0.41 yuan per watt-hour, adding as much as US$147 per car once the rate reaches 4 per cent, according to calculations by Cui Dongshu, secretary general of the China Passenger Car Association (CPCA).