How will China’s VAT rebate changes affect the battery market?

On 9 January, China’s Ministry of Finance and State Taxation Administration issued a joint statement outlining plans to phase out export VAT rebates for the battery and solar industries.

China has operated a long-standing VAT export rebate system to support exporters of manufactured products, including PV modules, cells, and battery materials, with rebates ranging from 6%–13%.

What is it?

Under the new policy, VAT rebates for batteries will be reduced from 9% to 6% from 1 April 2026, before being eliminated entirely from 1 January 2027. The 13% VAT rebate for the solar industry will be completely phased out from 1 April 2026. The elimination of the rebate will also apply to battery materials such as nickel-based pCAM and CAM, and LCO pCAM and CAM, as well as anode materials.

Notably, LFP CAM is excluded, as this historically has not received any export VAT rebates.

How will it affect the market?

From the battery cell side, the 3 percentage point drop in the VAT rebate will likely put pressure on producers to pass higher costs on to customers after April 2026, which in turn may pull forward battery demand in Q1 2026, as buyers look to secure lower prices.

As a consequence, this may lift battery output in the first quarter, temporarily boosting lithium carbonate and hydroxide demand at a time when inventories are already tight, amplifying near-term price sensitivity without materially changing longer-term demand fundamentals.

However, consumers may also look further ahead to Q4 2026, before the elimination of the VAT rebate, leading to another potential boost in demand in that quarter before the start of 2027.

It is worth noting that this will only affect exported goods that are subject to VAT. Cells sold domestically are unlikely to see a significant change in demand or prices.

What does this mean for ex-China anode and cathode prices?

China is a key source of cathode and anode materials, with many cell producers, especially South Korean and Japanese players, relying on China for NCM CAM and anode imports.

Given that cathode material accounts for roughly 40% of cell cost and anode material for 10%, an increase in the cost of these materials will put upward pressure on ex-China cell prices, assuming producers pass these higher costs on to customers.