China ends some EV tax breaks; lithium impact seen minimal

China's latest adjustment to vehicle and vessel tax incentives is expected to have little immediate impact on the country's lithium carbonate market, with market observers saying the changes were widely anticipated and unlikely to alter electric vehicle purchasing decisions.

China's Ministry of Finance, State Taxation Administration and Ministry of Industry and Information Technology on July 3 jointly issued a notice revising preferential vehicle and vessel tax policies.

Under the new rules, effective Jan. 1, 2027, China will cancel the 50% reduction in the vehicle and vessel tax for qualifying energy-efficient vehicles and remove tax exemptions for pure electric commercial vehicles, plug-in hybrid electric vehicles (PHEVs), range-extended electric vehicles (REEVs), and fuel-cell commercial vehicles.

The policy maintains tax-free treatment for pure battery-electric passenger vehicles and fuel-cell passenger vehicles, which remain outside the scope of China's vehicle and vessel tax law.

"The policy has almost no impact on the lithium carbonate market. This was already expected and had been discussed previously," a China-based analyst said.

Market participants noted that the tax change affects annual ownership costs rather than upfront purchase prices, limiting its influence on EV demand and, by extension, battery raw materials consumption.

Chinese authorities said the preferential policies, first introduced in 2012, had played an important role in promoting energy conservation, emissions reduction and the development of the country's new energy vehicle sector.

Restoring vehicle and vessel taxes for these vehicle categories would improve tax fairness and strengthen the role of taxation in income distribution, authorities said.

Under the revised framework, owners of qualifying commercial vehicles and energy-efficient vehicles acquired before Jan. 1, 2027, will also become subject to the tax once the new rules take effect.

"The actual expenditure impact on consumers is extremely small, with plug-in hybrid and energy-efficient models only adding a few hundred yuan in annual tax burden, which is almost negligible when spread across monthly costs and will not change mainstream car-buying decisions," Cui Dongshu, secretary general of the China Passenger Car Association, said July 5.

The policy shift represents a transition from supporting market scale expansion to promoting high-quality development in China's automotive industry, with minimal short-term market disruption expected while optimizing the industrial structure over the medium to long term, according to Cui.

China lithium market

China's lithium carbonate market remained volatile in the week to July 6.

The most actively traded lithium carbonate futures contract by open interest on the Guangzhou Futures Exchange closed at Yuan 164,560/mt on July 6, down 2.7% from the previous settlement but 6.9% higher than a week's closing price, exchange data showed.

Platts, part of S&P Global Energy, assessed battery-grade lithium carbonate at Yuan 166,000/mt ($24,434/mt) DDP China on July 3, up 12.2% week over week.

The price previously fell to Yuan 146,000/mt on June 29, hitting the lowest level since March 24, Platts data showed.