China makes a move on lithium; will Indian EV makers suffer?

China has decided to slash an export tax rebate on lithium-ion batteries from 9% to 6% from 1 April and phase it out in a year. The 8 January decision bodes ill for Indian EV makers heavily reliant on Chinese battery makers such as BYD and CATL, and comes at a time when lithium prices have shot up over the past year.

Batteries account for over a third of an EV's total cost, and costlier prices spell a direct blow to Indian EV makers, unless they pass on the increase to customers. EV makers dependent on short-term battery purchases are expected to bear the brunt of the decision.

“We are anticipating this issue to fully start reflecting in the market in the next few weeks. There will be a rush to stock up on inventory before the rebates go down," an executive handling battery supply for a two-wheeler manufacturer said.

Impact

Any increase in battery prices due to the withdrawal of rebates could force major EV scooter and car makers in India to raise vehicle prices, if they choose to pass on the impact. This comes at a sensitive moment for the sector: the tax differential between EVs and internal combustion engine (ICE) vehicles has already narrowed after the reduction in GST on ICE vehicles from 28% to 18% in some categories. EVs, which are generally more expensive than ICE scooters and cars, are taxed at 5% to aid adoption.

According to BloombergNEF, average battery prices in China are around $84/kWh, going as low as $36/kWh. While no official estimates of Indian import prices exist, the executive cited above said import prices of lithium iron phosphate (LFP) cells are $50-55kWh.

The Chinese surprise follows a sharp rise in lithium carbonate prices. According to S&P Global Energy platform Platts, the key battery raw material ended 2025 at $16,734 per metric tonne, up 58.1% from the start of the year. The increase was partly driven by the closure of a critical lithium mine in China's Yichun, which is estimated to account for about 3% of global lithium output.

Despite higher lithium prices, Chinese battery manufacturers are not reported to have increased prices materially. However, the removal of government incentives may force their hand.

Upward pressure

According to Harshvardhan Sharma, group head at Nomura Research Institute, these developments directionally create an upward pressure for lithium battery prices.

“A reduction or removal of export tax rebates effectively raises the landed cost of batteries from China unless exporters absorb it through margins. At the same time, tighter lithium supply can add volatility to input costs," Sharma said.

The impact on Indian manufacturers, however, is unlikely to be uniform in the near term. “Larger OEMs with long-term contracts or diversified sourcing may see limited near-term impact, while smaller players relying on spot imports or finished packs are more exposed."

“It’s also important to note that lithium prices do not translate one-to-one into cell prices. Chemistry mix, inventories, contract structures, and competition among Chinese exporters can temporarily mute or delay the impact," Sharma added.

India primarily imports lithium-ion batteries from China, South Korea, and Japan. Major global battery makers with partnerships or operations linked to India include CATL, BYD, Eve, Panasonic, and LG.

According to Maruti Suzuki, which exports its electric vehicle eVitara, global supply chain disruptions and tariff wars are a "business reality" the Indian automobile industry needs to live with. "We need to find our own solutions of de-risking and stand on our own feet without fiscal subsidies and incentives," a company spokesperson said.

Queries emailed to Tata Motors, Mahindra and Mahindra, Hyundai Motor India, Bajaj Auto, TVS Motor Co., Ather Energy, Ola Electric, and Hero MotoCorp. remained unanswered.

Local production

To encourage EV battery production, India has launched the ₹18,100 crore Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC), which aims to establish a domestic manufacturing capacity of 50GWh while mandating 60% local value addition within five years.

At present, only Ola Electric has localized part of its battery requirements through a gigafactory in Tamil Nadu, where it manufactures lithium-ion cells. Other battery makers such as Reliance, Amara Raja, Exide Industries, Agratas and JSW Energy are expected to begin production at their facilities over the next two to three years, with more than 100GWh of annual capacity committed to be built by 2030.

In 2025, India's total EV sales, including cars, scooters, trucks, buses and three-wheelers, crossed the 2 million mark for the first time. Electric car sales rose 77% year-on-year to 176,817 units, while electric two-wheeler sales grew 11% to 1.27 million units. Despite the growth, adoption remained low at 6.3% for two-wheelers and 4% for four-wheelers.

The emerging pressure on the lithium battery supply chain comes alongside efforts by automakers to diversify their sourcing of rare earth magnets. In April 2025, China’s decision to impose export controls on shipments of rare earth magnets disrupted automakers, as the component is critical for EV motors and electronic systems used across vehicles.