by GAO Jing
China's lithium battery makers are moving to renegotiate export contracts after Beijing announced a phased rollback of value-added tax (VAT) rebates, testing their ability to pass higher costs on to overseas buyers.
Under a joint notice issued by the Ministry of Finance and the State Taxation Administration on January 9, the VAT export rebate for battery products will be cut from 9% to 6% from April 1 to December 31, 2026, before being eliminated entirely from January 1, 2027. Export rebates for photovoltaic products will also be scrapped from April 2026.
For exporters, the change will cut into margins unless they can pass the higher costs on to buyers.
"If we cannot pass on the additional costs from the policy change, every percentage-point reduction in rebates will directly erode net profit," said YANG Hongxin, chairman of SVOLT, an energy storage battery manufacturer.
Industry consultants expect battery prices to rise gradually rather than in a single step.
FU Qiang, energy industry chief expert at Roland Berger, told Jiemian News that power battery prices may increase 2–3% in the initial phase, while energy storage batteries could rise 2–4%. After rebates are fully removed in 2027, cumulative increases across categories may reach 6–9%, though consumer batteries are likely to see only 1–2% gains due to intense competition.
Strong underlying demand may limit the impact. Fu estimated short-term demand could slip just 2–3%, arguing that electric vehicle and large-scale energy storage orders remain structurally robust, particularly in Europe and the United States.
China dominates global supply, accounting for more than 70% of global power battery installations and over 80% of energy storage battery shipments in 2025.
The policy shift has already triggered what executives call a "rush installation" cycle ahead of the April deadline.
In mature markets such as Australia, Japan and South Korea, some energy storage projects originally scheduled for grid connection in 2027 are being brought forward to 2026 to lock in current pricing.
At the same time, overseas customers are stepping up supply chain diversification. India, in particular, is accelerating local battery pack and system integration capacity, with at least seven Indian companies building production lines, according to industry sources.
Yet analysts caution that full substitution remains unlikely in the near term. Production costs in South Korea are roughly 10–15% higher than in China, while Southeast Asia and other emerging manufacturing bases face constraints in scale and supporting ecosystems.
Beyond immediate pricing negotiations, analysts and industry experts say the rebate rollback reflects a broader push to curb overcapacity and price wars in China's new energy sectors.
"The goal is not to squeeze corporate profits, but to restore more rational pricing in the battery market," Yang said.
China's battery industry has been grappling with falling margins despite rising shipment volumes, as aggressive expansion and a glut of similar products fueled intense price competition.
FENG Siyao, deputy secretary-general of the Energy Storage Application Branch under the China Industrial Association of Power Sources, said scrapping the rebates would reduce the policy cushion that had supported aggressive price competition.
LIU Zhikuo, professor at Fudan University's School of Economics, told Jiemian News that eliminating export VAT rebates removes distortions created by overlapping central rebates and local subsidies, helping shift competition toward technology, branding and lifecycle services rather than price cuts.
He added that the move could also ease perceptions that Chinese exporters benefit from policy-driven low pricing, potentially reducing exposure to anti-subsidy and anti-dumping investigations.
Executives acknowledge that fully passing on costs to overseas buyers is not without risk.
"Completely passing on higher costs may weaken our customers' competitiveness," Yang said, adding that SVOLT is evaluating localized overseas production to mitigate pressure.
For now, exporters say resistance softens once overseas clients see that all suppliers are raising prices.
"Once they see that all major suppliers are raising prices, they tend to accept it," said a battery export executive.
With factories racing to fulfill orders before the rebate cuts take effect, production lines at battery and solar plants are expected to run at high capacity in the coming months.
Whether Chinese manufacturers can raise prices without losing market share may determine whether the end of the "rebate dividend" becomes a margin shock — or a structural turning point.