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Over the years, China's new energy vehicle (NEV) sector has experienced rapid growth, with various companies making significant strides. However, the recent announcement of a battery tax has sparked curiosity: Will NEV prices start to escalate?

I. Introduction of the Battery Tax

According to a CCTV Business report, the lithium battery industry, which has enjoyed a consumption tax exemption for over a decade, will see a tax rate adjustment starting September 1st this year. Lithium primary batteries and lithium-ion batteries will now be subject to a 2% consumption tax, which will rise to 4% from September 1st next year.

From a practical standpoint, the consumption tax will be levied at the production, commissioned processing, and import ex-factory stages, with battery production enterprises as the taxpayers. If taxpayers purchase already-taxed batteries for the continuous production of taxable battery products, they can deduct the already paid consumption tax based on the actual quantity used. For self-produced and self-used taxable batteries in continuous production, no additional consumption tax is payable. Exported batteries are eligible for a consumption tax refund after initial collection.

Take, for instance, a home-use pure electric vehicle priced around 150,000 yuan, equipped with an 80kWh ternary lithium battery. The battery cost is approximately 60,000 yuan. At a 2% tax rate, the additional tax burden would be around 1,200 yuan; if the tax rate increases to 4%, the burden would rise to around 2,400 yuan. Spread across the vehicle's selling price of 150,000 yuan, this results in a price increase of 0.8% to 1.6%. For a vehicle with a 100kWh large-capacity battery pack, the additional cost at a 4% tax rate would be approximately 3,000 yuan.

In terms of overall price increases, entry-level NEVs may see a slight uptick in prices; for high-end models, the cost increase of a few thousand yuan can essentially be overlooked.

In 2015, China introduced policies to support the battery consumption tax, exempting lithium batteries and solar photovoltaic batteries. After more than a decade of development, China's lithium battery and photovoltaic industry chains have achieved full autonomy and controllability, with lithium battery production capacity accounting for over 80% of the global market.

II. Will NEV Prices Rise After the Battery Tax?

Recently, there has been much industry chatter about the "adjustment of preferential policies for NEV purchase taxes" or the transition of policies with tax implications. The mere mention of "tax" often triggers nervousness, leading many to wonder: Will cars become more expensive? Should I revise my car-buying budget?

Firstly, the shift from tax exemption to tax resumption is inevitable. What was the core purpose of the national policy to promote tax exemptions for NEVs? According to the infant industry protection theory by renowned German economist Friedrich List, the primary reason for previous tax exemptions was to nurture the market and provide an opportunity for new energy, a newcomer, to break through the stronghold of fuel-powered vehicles. At that time, NEVs faced high costs, immature technology, and low market acceptance. Without substantial subsidies and tax exemptions, the industry would not have had a chance to start, let alone develop. International practices also involve using subsidies, tax reductions, and other supportive policies to foster growth. Tax exemption policies were the "stimulant" and "booster" for the industry's initial growth, and their necessity is undeniable.

However, times have changed. After more than a decade of rapid development, the NEV market has matured, boasting record-high penetration rates, diverse product offerings, and technological iteration speeds that even traditional fuel-powered vehicles cannot match. Continuing to rely on tax exemption policies would not only strain fiscal resources but also create severe market dependency and distorted resource allocation. As children grow up rather than being carried to adulthood, a mature market must adhere to market laws, transforming policies from "nanny-style" care to "rule-based" guidance.

Therefore, the formal implementation of the battery tax is a natural progression, not a policy shift. It signifies that NEVs have matured and must learn to face challenges independently. The transition from encouraging development to regulating development is a necessary path for any emerging industry to mature.

Secondly, the likelihood of a widespread price increase in the industry due to taxation is low. On one hand, the NEV industry is highly competitive, with profit margins across the entire supply chain squeezed to the extreme. Manufacturers face immense competitive pressure. Would they dare to raise prices at this critical juncture? With Tesla leading cost-cutting efforts and new players vying for market share, passing on increased costs due to taxation to consumers is risky. Essentially, whoever raises prices first risks going out of business or losing market share. Under such competitive dynamics, manufacturers would rather bear the burden themselves and squeeze the profits of upstream and downstream supply chain partners than directly increase retail prices and push consumers away.

On the other hand, the power battery industry chain is currently in a price reduction phase. Raw material prices have come down, and the overall cost of the battery industry chain is decreasing. This provides manufacturers with an opportunity to offset the tax burden through supply chain optimization or by reaping the benefits of raw material price reductions. While taxation may slightly increase costs, supply chain savings largely eliminate the urge to raise prices. Therefore, the idea of a widespread price increase in the retail market is unfounded in the current industry environment.

Thirdly, the 80-20 split in the battery market is expected to accelerate. In capital-intensive manufacturing industries, economies of scale are a core logic that cannot be ignored, and the power battery sector exemplifies this principle. Large leading battery companies, with their massive production capacities and high equipment utilization rates, can reduce procurement costs for upstream raw materials through large-scale purchases. Depreciation and manufacturing expenses for production lines can be spread across a vast output volume, resulting in significantly lower unit product costs compared to small and medium-sized manufacturers. Faced with additional tax burdens, leading companies have sufficient profit buffers and supply chain bargaining power to absorb the new costs.

In contrast, many small and medium-sized battery companies, with limited production capacities and often underutilized capacity, already face higher production costs and thin profit margins due to fierce market competition. The new tax burdens further compress their already narrow safety margins. They lack the ability to negotiate lower prices with upstream suppliers, and their shipment volumes are insufficient to spread the new costs. Raising prices for downstream customers would directly result in lost orders, leaving them in a dilemma. Some small and medium-sized enterprises lacking technological accumulation and cost advantages are likely to gradually lose market competitiveness in this round of policy changes, experiencing sustained order declines and eventually exiting the market.

Market order resources will further concentrate among the leading players, amplifying the Matthew effect. It is important to note that this reshuffling is not a direct result of policies eliminating small and medium-sized enterprises but rather the cost variables introduced by policies amplifying the existing capability gaps. Enterprises that were already struggling will be accelerated out of the market, while well-established companies will gain even greater development space.