China's EV Battery Tax Cut Sparks Indian Price Hikes

A recent policy change in Beijing is poised to escalate electric vehicle (EV) prices across India, even as the tax incentives for EVs over traditional combustion engines diminish. China's decision to lower its export tax rebate on lithium-ion batteries from 9% to 6% effective April 1, 2026, with a full phase-out within a year, poses a significant challenge for Indian EV manufacturers. These companies depend heavily on Chinese suppliers like BYD and CATL for batteries, which constitute over a third of an EV's cost.

This development arrives at a critical juncture for India's burgeoning EV sector. The tax differential between EVs and internal combustion engine (ICE) vehicles has already narrowed due to a reduction in GST on ICE vehicles. The impending increase in battery costs, driven by both China's rebate withdrawal and a global surge in lithium prices, could force Indian automakers to raise their vehicle prices. The price of lithium carbonate, a key battery raw material, saw a substantial 58.1% increase in 2025, exacerbated by the closure of a significant Chinese lithium mine.

India is actively working to bolster its domestic battery production through initiatives like the ₹18,100 crore Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) manufacturing. However, the immediate future sees continued reliance on imports, primarily from China, South Korea, and Japan. While some larger Indian automakers are exploring long-term contracts and diversified sourcing, smaller manufacturers dependent on spot imports are more vulnerable to these price fluctuations. The overall EV sales in India surpassed two million units in 2025, indicating growth but with adoption rates still modest.