Is CR2016 Battery Compatible with AirTag?

CR2032 is 20mm diameter, and 3.2mm thick.

CR2016 is 20mm diameter, and 1.6mm thick.

Much thinner.

Whether a reliable electrical contact can be made with the thinner battery?

As mentioned above, and if the contacts do work, the CR2016 has a much lower capacity of 90 milliamp-hours, versus 240 milliamp-hours in the thicker CR2032.

You do want a battery without bitterant coating.

How to replace the battery in your AirTag - Apple Support

It will work, but it will only last about half as long as the recommended CR2032.

Currently installing CR2016 into my Air Tag. Though they have difference in thickness. I was able to install two CR2016 in one AirTag which it works.