China battery shares drop on plan to cut export tax rebates

[HONG KONG/SINGAPORE] Chinese battery shares fell after Beijing unveiled a plan to reduce some export tax rebates, while South Korean materials companies advanced.

Contemporary Amperex Technology Limited (CATL) led the drop with a decline of as much as 4.8 per cent in onshore trading on Monday (Jan 12), and is among the worst performers on the MSCI China Index.

Its smaller peers, including Eve Energy and Gotion High-Tech, also slid more than 4 per cent at one point. 

China announced a rejig of its value-added tax (VAT) rebates on hundreds of export products, starting from April.

Such discounts on 22 battery-related goods will be cut from 9 per cent to 6 per cent, with a complete removal planned from 2027.

“The decline in Chinese battery stocks today appears to be a knee-jerk reaction,” said Gary Tan, portfolio manager at Allspring Global Investments. “Investors view it as an early signal of tighter oversight on overseas battery shipments, a key demand driver last year.”

The measure comes as Beijing steps in to rein in the exports of some goods, including battery-related items, as trade tensions with partners such as the European Union remain intense despite a tariff truce with the US.

It could add pressure to the battery sector, at a time when China is already urging the industry to curb excessive capacity expansion and avoid cut-throat competition.

Lithium, meanwhile, extended its recent rally on Monday, aided by expectations of a potential rush of battery-related exports ahead of the April policy changes.

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The most active lithium carbonate futures rose by the 9 per cent limit on the Guangzhou Futures Exchange to 156,060 yuan (S$28,800) a tonne.

The shares of producers, including Tianqi Lithium and Ganfeng Lithium Group, surged as much as 6 per cent in Shenzhen.

“The latest policy should open a potential front-loading export window during the year,” analysts at Citigroup wrote in a note.

Some observers pointed to the limited impact of the tax changes to CATL, the world’s biggest electric-vehicle battery maker, given the company’s stronger pricing power and scale advantages. The policy may be more challenging to tier-two manufacturers.

“Smaller players have historically leveraged the higher VAT refund to implement aggressive low-pricing strategies, to win energy storage system orders,” analysts at Morgan Stanley wrote in a note.

They added that the lower rate will leave them exposed to margin compression and competitive pressure.

The shares of South Korean battery-materials makers, on the other hand, rose as Beijing’s policy move narrowed the cost advantage of the Chinese companies. Ecopro BM and POSCO Future M each gained more than 6 per cent on Monday.

Meanwhile, Beijing also said that it will cancel export tax rebates on solar cells, a move that lifted the shares of major Chinese solar companies. Trina Solar surged as much as 11 per cent in Shanghai, while Jinko Solar followed with gains of up to 7.8 per cent.

The removal of such rebates was expected by the industry and will help accelerate industry consolidation by eliminating less efficient players, ultimately benefiting industry leaders, indicated a separate note from Citigroup. BLOOMBERG