China's Lithium Policy Shift Threatens Indian EV Makers with Higher Battery Costs
A recent policy change in China is creating waves for India's electric vehicle industry. The Chinese government has decided to reduce export tax rebates on lithium-ion batteries. This move comes alongside a significant increase in lithium prices over the past year.
Immediate Impact on Battery Prices
China will slash the export tax rebate on lithium-ion batteries from nine percent to six percent starting April first. The rebate will be phased out completely within one year. This decision directly affects Indian EV manufacturers who heavily depend on Chinese battery suppliers like BYD and CATL.
Batteries represent more than one-third of an electric vehicle's total cost. Higher battery prices could deal a serious blow to Indian EV makers unless they transfer the increased costs to consumers. Companies relying on short-term battery purchases will likely feel the strongest impact.
"We expect this issue to fully manifest in the market within the next few weeks. There will likely be a rush to stock up inventory before the rebates decrease," said an executive handling battery supply for a two-wheeler manufacturer.
Timing Creates Additional Pressure
This development arrives at a sensitive moment for India's EV sector. The tax advantage that electric vehicles held over internal combustion engine vehicles has already narrowed. The government reduced GST on some ICE vehicles from twenty-eight percent to eighteen percent, while EVs continue to be taxed at five percent to encourage adoption.
Any increase in battery prices due to the rebate withdrawal could force major Indian EV scooter and car manufacturers to raise vehicle prices if they choose to pass on the impact to customers.
Lithium Price Surge Compounds the Problem
The Chinese policy shift follows a sharp rise in lithium carbonate prices. According to S&P Global Energy platform Platts, this key battery raw material ended 2025 at $16,734 per metric tonne. This represents a fifty-eight point one percent increase from the start of the year.
The price surge was partly driven by the closure of a critical lithium mine in China's Yichun region. This mine accounted for approximately three percent of global lithium output.
Despite higher lithium prices, Chinese battery manufacturers have not significantly increased their prices yet. However, the removal of government incentives may force them to reconsider.
Expert Analysis on Price Pressure
Harshvardhan Sharma, group head at Nomura Research Institute, explained that these developments create 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 will likely vary 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," Sharma added.
He also noted that lithium prices do not translate directly into cell prices. Factors like chemistry mix, inventories, contract structures, and competition among Chinese exporters can temporarily reduce or delay the impact.
Industry Response and Local Production Efforts
India primarily imports lithium-ion batteries from China, South Korea, and Japan. Major global battery makers with Indian partnerships or operations include CATL, BYD, Eve, Panasonic, and LG.
According to Maruti Suzuki, which exports its electric vehicle eVitara, global supply chain disruptions and tariff wars represent a "business reality" that the Indian automobile industry must accept. "We need to find our own solutions for de-risking and stand on our own feet without fiscal subsidies and incentives," a company spokesperson stated.
To encourage domestic EV battery production, India has launched the ₹18,100 crore Production Linked Incentive scheme for Advanced Chemistry Cell. This initiative aims to establish a domestic manufacturing capacity of fifty gigawatt-hours while mandating sixty percent local value addition within five years.
Currently, 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 including Reliance, Amara Raja, Exide Industries, Agratas and JSW Energy are expected to begin production at their facilities over the next two to three years.
More than one hundred gigawatt-hours of annual capacity is committed to be built by 2030.
EV Market Context
In 2025, India's total EV sales across cars, scooters, trucks, buses and three-wheelers crossed the two million mark for the first time. Electric car sales rose seventy-seven percent year-on-year to 176,817 units. Electric two-wheeler sales grew eleven percent to 1.27 million units.
Despite this growth, adoption rates remained relatively low at six point three percent for two-wheelers and four percent for four-wheelers.
The emerging pressure on the lithium battery supply chain coincides with automakers' efforts 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 since this component is critical for EV motors and electronic systems used across vehicles.
