Contents
China’s dominance in the global electric vehicle (EV) supply chain is unparalleled, with 60% of the world’s lithium refining capacity and 75% of lithium-ion battery production concentrated within its borders. However, the upcoming cancellation of battery export tax rebates in 2026 to 2017 is set to disrupt this landscape.
According to the Joint Announcement by the Ministry of Finance and the State Taxation Administration on Adjusting Export Tax Rebate Policies for Photovoltaic and Other Products, the VAT export rebate rate for battery products will be reduced from 9% to 6% from April 1, 2026, to December 31, 2026. Starting January 1, 2027, the VAT export rebate for battery products will be eliminated. This policy shift, aimed at curbing overcapacity and redirecting resources toward domestic high-tech sectors, will have cascading effects on lithium prices, power battery manufacturers, EV exports, and the broader global supply chain. Understanding these dynamics is critical for stakeholders from raw material miners to automakers worldwide.
Battery Export Tax Rebate Cancellation: Policy Context and Rationale
China’s battery export tax rebates, which have historically ranged from 13% to 17% for lithium-ion batteries, were designed to boost global competitiveness during the industry’s infancy. By 2023, these incentives helped Chinese battery exports reach $120 billion, with CATL and BYD controlling 37% and 16% of the global market share, respectively. However, the Ministry of Finance (MOF) announced in late 2024 that rebates would be phased out entirely by 2026, citing “excessive reliance on low-margin exports” and “environmental concerns in lithium extraction.” This move aligns with China’s 14th Five-Year Plan focus on high-value manufacturing and carbon neutrality goals.
While the policy aims to address domestic imbalances, its timing coincides with a projected 30% global increase in EV demand by 2026, creating a perfect storm for supply chain volatility. The following sections break down the expected impacts across key industry segments.
Lithium Price Dynamics: A Balancing Act of Demand and Policy
The cancellation of China’s battery export tax rebates will directly influence lithium demand, as Chinese battery manufacturers face higher export costs. Historically, 40% of China’s battery production has been exported, translating to approximately 200,000 tonnes of lithium carbonate equivalent (LCE) consumed annually for overseas markets. With rebates removed, export volumes could drop by 15–20% in 2026, according to projections from the International Energy Agency (IEA). This reduced demand might initially pressure lithium prices downward, potentially lowering benchmark prices from 2024’s $25,000/tonne to $20,000–$22,000/tonne by mid-2026.
However, domestic factors could offset this decline. China’s new energy vehicle (NEV) sales are expected to grow 25% year-over-year in 2026, driven by subsidies for smart EVs and charging infrastructure expansion. This could increase domestic lithium demand by 18%, absorbing surplus supply from reduced exports. Additionally, Beijing’s restrictions on lithium spodumene exports, implemented in 2025 to protect domestic refining capacity, may limit global supply growth. A 2025 IEA report warns that global lithium supply could face a 5% deficit by 2027 if Chinese refineries slow output, creating upward price pressure long-term.
| Scenario | 2024 Lithium Price | 2026 Projected Price | Key Driver |
|---|---|---|---|
| Bear Case (Weak Export Drop) | $25,000/tonne | $18,000/tonne | 20% export decline, soft domestic NEV sales |
| Base Case | $25,000/tonne | $21,000/tonne | 15% export decline, 18% domestic demand growth |
| Bull Case (Supply Constraints) | $25,000/tonne | $28,000/tonne | 10% export decline, spodumene export restrictions |
This price volatility will force upstream lithium producers, from Ganfeng Lithium to Albemarle, to reassess investment in new mines, potentially delaying projects and exacerbating future supply gaps.
Power Battery Manufacturers: Navigating Profit Pressures and Innovation
For China’s battery giants, the tax rebate cancellation arrives amid already thin margins. In 2024, CATL’s net profit margin stood at 8.2%, with exports contributing 45% of revenue. Removing a 13% rebate on these exports could reduce margins by 3–4 percentage points unless offset by price hikes or cost cuts. BYD, which vertically integrates EV and battery production, may fare better, as only 30% of its batteries are sold externally.
To adapt, manufacturers are likely to pursue two strategies: product upgrades and regionalization. CATL has announced plans to increase production of high-nickel batteries (811 NCM) by 30% in 2026, targeting premium EV markets in Europe where higher prices can absorb cost increases. Meanwhile, BYD is doubling down on LFP battery innovation, with its Blade Battery 2.0 claiming 10% higher energy density at 5% lower production cost. These advancements could help maintain competitiveness despite reduced export incentives.
Regional production is another key trend. CATL broke ground on a $2 billion battery plant in Hungary in 2025, aiming to supply European automakers tariff-free. Similarly, SK On and LG Energy Solution are expanding in the U.S. under the Inflation Reduction Act (IRA), but Chinese firms face challenges accessing Western subsidies due to geopolitical tensions. This shift could fragment the global battery market, with China focusing on domestic and Southeast Asian markets, while Western producers target Europe and North America.
EV Export Trends: Competitiveness Challenges and Market Shifts
China’s EV exports, which surged 60% in 2023 to 5.5 million units, may face headwinds in 2026 as battery costs rise. Approximately 70% of an EV’s production cost stems from its battery, so a 13% increase in battery export costs could raise overall vehicle prices by 8–10%. This threatens China’s cost advantage in markets like Southeast Asia, where Chinese EVs currently undercut Japanese rivals by 15–20%.
To mitigate this, automakers are exploring localized sourcing. SAIC Motor, for example, plans to source 30% of batteries for its Thai EV plant from local suppliers by 2027, reducing reliance on Chinese exports. Similarly, NIO has announced partnerships with Indonesian nickel producers to secure low-cost raw materials for battery production in Southeast Asia. These moves align with Beijing’s “Dual Circulation” strategy, which encourages domestic companies to build regional supply chains.
Europe, China’s largest EV export market, presents a mixed outlook. While price hikes may slow sales of budget models like MG ZS EV, premium brands such as NIO and XPeng could maintain momentum by emphasizing software features and smart driving capabilities. The European Union’s proposed carbon border adjustment mechanism (CBAM), set to include EVs in 2027, adds further complexity, as Chinese-made EVs may face additional tariffs unless they meet strict emissions standards. A European Commission report estimates that Chinese EVs could face a 10–12% CBAM tariff by 2028, further pressuring export volumes.
Global Supply Chain Restructuring: From Dominance to Diversification
The tax rebate cancellation accelerates a broader trend of global supply chain diversification away from China-centric models. For years, automakers have relied on “China + 1” strategies, but 2026 could mark a shift toward regionalization. Southeast Asia is emerging as a key hub, with Vietnam and Indonesia attracting $30 billion in battery and EV component investments since 2024. Indonesia’s nickel processing capacity, for instance, is set to triple by 2026, making it a critical supplier for LFP batteries.
Latin America is also gaining prominence, particularly for lithium. Chile’s SQM and Argentina’s Livent are expanding production to reduce reliance on Chinese refining, with the U.S. Department of Energy investing $1.5 billion in “friendshoring” critical mineral supply chains. This could reduce China’s share of global lithium refining from 65% in 2024 to 55% by 2030, according to the U.S. Geological Survey (USGS).
However, China retains advantages in battery technology and scale. Its battery manufacturers control 85% of global LFP production capacity and 70% of cathode material output. Even with supply chain diversification, Chinese firms are likely to remain dominant in mid-to-low-end EV markets, while Western and Japanese automakers focus on premium segments. This bifurcation could lead to a “two-speed” global EV transition, with China driving mass adoption in emerging markets and the West leading in high-tech, high-priced models.
Policy Responses and Industry Adaptations
To counterbalance the impact of rebate cancellation, Beijing is expected to roll out supportive policies. The National Development and Reform Commission (NDRC) has signaled potential tax breaks for battery manufacturers investing in solid-state battery R&D, with targets to commercialize the technology by 2030. Additionally, subsidies for NEV exports to Belt and Road Initiative (BRI) countries may be introduced, focusing on markets with less competitive local EV industries, such as Pakistan and Egypt.
For lithium miners, policy adjustments on resource taxes are possible. China currently levies a 2–3% tax on lithium production, but this could be reduced to 1% for miners using green extraction methods, encouraging sustainable supply growth. Local governments in Sichuan and Jiangxi, major lithium-producing regions, are also offering land incentives for battery recycling plants, aiming to boost domestic supply from secondary sources to 20% by 2026.
Internationally, trade tensions may escalate. The U.S. and EU have already imposed anti-subsidy tariffs on Chinese EVs, and the rebate cancellation could prompt retaliatory measures if Beijing introduces new export incentives. However, collaboration remains possible in areas like battery standardization and recycling, with China participating in the G7’s Critical Minerals Alliance despite political differences.
Conclusion:
The cancellation of China’s battery export tax rebates in 2027 is more than a policy adjustment—it signals a strategic shift toward quality over quantity in the global EV market. While short-term disruptions are inevitable, with lithium prices fluctuating and EV exports facing headwinds, the long-term impact may strengthen China’s position as a leader in high-value battery technology and domestic NEV adoption. Global supply chains will diversify, but China’s scale, innovation, and policy agility ensure it remains a central player in the energy transition.
Stakeholders must prepare for a more fragmented landscape: automakers will need regional sourcing strategies, lithium investors should balance short-term price volatility with long-term demand growth, and policymakers must navigate tradeoffs between industrial policy and global cooperation. As the dust settles, the battery export tax rebate cancellation may prove to be a catalyst for a more resilient, innovative, and sustainable global EV ecosystem.
