From electric vehicles to smartphones: The Chinese tax bomb heading for batteries
China is set to impose its first tax on lithium-ion batteries and solar cells in a decade. Starting in September 2026, a 2% purchase tax will be applied, rising to 4% a year later, potentially impacting global prices for energy storage and electric vehicles.
For the first time in a decade, China will impose a tax on lithium-ion batteries—which power electric vehicles and most rechargeable devices—and on solar cells, the component that generates electricity in panels. This is according to a report by Bloomberg.
China will initially impose a 2% purchase tax on lithium-ion batteries starting in September 2026, and on solar cells starting April 1, 2027. After a year, the tax rate will rise to 4%. At the same time, at the beginning of 2027, VAT refunds for battery exporters will be completely abolished. The new purchase tax will be levied on manufacturers, and while they could theoretically absorb the hit to profitability, it is very likely that at least part of it will be passed on to customers, potentially reaching markets like Israel. This move signals a shift in Beijing's industrial policy and raises the possibility of price increases for the chain of products that rely on them, from electric cars to energy storage systems.
Aggressive price war and the fight against 'Involution'
The background to this move is the aggressive price war raging in the Chinese market, a phenomenon dubbed in China as "Involution"—predatory internal competition that erodes profitability. The move is part of a broader effort by Beijing to deal with excess production capacity in the clean energy sectors. According to the International Energy Agency (IEA), China is responsible for more than 80% of the world's lithium-ion battery production capacity. Beijing is now signaling that it is interested in curbing destructive competition and encouraging a transition to more advanced technologies.
Market consolidation and technological shifts
The first significance of the move concerns battery giants like CATL and BYD, which control a huge share of the global market. The second significance is culling: dozens of small and medium-sized manufacturers that survived only thanks to benefits are expected to disappear or merge. The third significance lies in what was excluded: sodium-ion batteries, solid-state batteries, and fuel cells will be exempt from tax until the end of 2028. Beijing's message to manufacturers is sharp: stop investing in old lithium production lines and shift development budgets to the next generation of the energy world.
'There is no real alternative to China'
One of the areas most affected by these measures is the storage sector. "The tax puts buyers before a real dilemma of whether to rush and buy batteries before the tax increase, or continue as usual," says Zvi Ben-David, VP of the Chinese energy giant HyperStrong, which has been operating in Israel since the beginning of 2025. According to Ben-David, because China controls the vast majority of solar cell and energy storage production, buyers do not really have an alternative. The priority for Israeli buyers is to ensure they choose a partner that can provide certainty and stand behind the system's performance for 20 years.
