By D. Maan, Jadetimes News
EU Raises Tariffs on Chinese Electric Vehicles
The European Union has increased tariffs on Chinese electric vehicles, implementing additional charges on individual manufacturers ranging from 17.4% to 37.6%. This is on top of the existing 10% duty for all electric cars imported from China. This move aims to protect the EU's motor industry but could make EVs less affordable for European consumers. It also deals a significant blow to Beijing, which is already in a trade war with Washington. As the largest overseas market for China’s EV industry, the EU is crucial for China's efforts to boost its flagging economy with high tech products. EU officials attribute the surge in imports to "unfair subsidization," allowing Chinese EVs to be sold at much lower prices than those produced in the bloc. Beijing denies these accusations, stating that it does not subsidize excess production to flood Western markets with cheap imports. The new tariffs, effective Friday, are provisional while the investigation into Chinese state support continues, with final decisions expected later this year.
Impact on Global and Local Markets
The tariff increase affects not only Chinese brands but also Western firms manufacturing cars in China. Brussels claims that these measures aim to correct market distortions. Compared to the recent US decision to raise total tariffs to 100%, the EU’s move might seem modest but could have significant consequences. While Chinese EVs are uncommon in the US, they are increasingly popular in the EU, with their market share rising from 0.4% in 2019 to nearly 8% last year, according to Transport and Environment (T&E). T&E projects that companies like BYD and Shanghai Automotive Industry Corporation (SAIC), the owner of the MG brand, could achieve a 20% market share by 2027. However, the new tariffs will not uniformly affect all Chinese made EVs. For example, Patryk Krupcala, a Polish architect, chose the China made MG4 for its affordability and performance, highlighting the potential for varied impacts across different consumer segments and manufacturers.
Tariffs Based on State Aid Estimates
The new tariffs on Chinese electric vehicles were determined based on estimates of state aid received by each firm, with companies cooperating in the investigation receiving lower duties. The European Commission has imposed specific duties on three Chinese EV brands, SAIC, BYD, and Geely. SAIC, the Chinese partner of Volkswagen and General Motors, and the owner of MG, faces the highest tariff at 37.6%. Rhodium Group, an independent research firm, notes that this penalty significantly impacts SAIC, which derives 15.4% of its global revenues from EV sales in Europe. However, for consumers like Mr. Krupcala, who bought his MG4 before the tariffs were implemented, the EU's decision has little effect on their purchase satisfaction.
Differing Impacts on BYD and Consumer Choices
China's largest EV maker, BYD, faces an additional duty of 17.4% on its vehicles shipped from China to the EU, the lowest increase among the targeted brands. Dutch bank ING suggests that this lower tariff could provide BYD with a competitive advantage in the European market. Luís Filipe Costa, an insurance executive from Portugal who recently purchased a BYD Seal, cited price as a key factor in his decision. He mentioned that even if the new tariffs had been in place, he would have still chosen BYD, as other brands would also be affected by the tariffs. This sentiment reflects the complex consumer landscape and the potential for varied impacts across different EV manufacturers.
Geely and Broader Implications for EV Imports
Geely, the owner of Sweden's Volvo, faces an additional tariff of 19.9%. According to Spanish bank BBVA, while the company will still be able to export to the EU profitably, its profits will be significantly reduced. Other firms, including European car makers operating factories in China or through joint ventures, will also incur higher costs to bring electric cars into the EU. Companies that cooperated with the investigation will face an extra duty of 20.8%, while those deemed non cooperative by EU investigators will pay the higher tariff of 37.6%.
Impact on Tesla and Consumer Preferences
US based Tesla, the largest exporter of electric vehicles from China to Europe, has requested an individually calculated rate, which EU officials will determine at the end of the investigation. Meanwhile, Tesla has notified customers on some of its European websites that prices for its Shanghai made Model 3 could increase due to the new tariffs. Last year, German businessman Lars Koopmann purchased a China made Tesla Model Y, appreciating its high tech features and competitive price compared to premium German brands. Koopmann noted that if the tariffs had been in place at the time, they would have influenced his purchasing decision.
Impact on China Based Exporters and European Manufacturers
While some China based exporters may fare better than others, the European Commission's plans ensure that all will face higher costs when shipping to Europe. According to Rhodium Group, the hardest hit will be SAIC brands like MG, as well as joint ventures between foreign and Chinese firms in China, which often have narrower profit margins on the cars they export to Europe. The biggest beneficiaries of the new duties will be European based producers with limited exposure to China, such as Renault. These tariffs are intended to reduce the number of Chinese made EVs entering the region, thus easing the competitive pressure on local manufacturers.
Encouraging Local Investment and Production
The new tariffs are also prompting major Chinese EV firms to build production capacity within the EU, which could help them avoid the increased duties. BYD's first European factory is under construction in Hungary, with production expected to begin by the end of next year. Chinese car maker Chery has signed a joint venture deal with a Spanish firm to manufacture EVs and other types of cars in Barcelona. SAIC is also seeking a site for its first European factory. Bill Russo from Shanghai based consulting group Automobility notes that the EU's strategy aims to encourage companies to shift their investments to the EU, rather than exporting from China. The varying tariff rates signal the EU's intention to penalize less committed firms more heavily, while incentivizing those that invest locally.
China's Investment in EVs and Its Global Impact
The Chinese government has heavily invested in the electric vehicle (EV) industry, allocating over $230 billion between 2009 and 2023, according to the Center for Strategic and International Studies. This substantial state support has propelled China to a leading position in the global EV market. The International Energy Agency reports that China accounted for more than 60% of the world's new electric car sales last year. Although the majority of these EVs are sold domestically, international markets, particularly Europe, have become increasingly significant. Gregor Sebastian, a senior analyst at Rhodium, notes that exports are a profitable segment for China's EV industry, helping to offset losses from domestic price wars. However, the new EU tariffs are expected to adversely affect China's EV exports, which are vital for the industry’s profitability.
Economic Challenges and Strategic Shifts
China's economy is grappling with a slowdown post pandemic and an ongoing property crisis, leading to lower domestic consumption and investment levels. To counter this, China is attempting to "export its way out" of the slump, as stated by Alicia Garcia Herrero, chief economist for the Asia Pacific region at Natixis. The Chinese government is placing another significant bet on the EV industry, designating it as one of the "New Three" growth drivers in its strategy to revive the economy, alongside exports of batteries and renewable energy. However, with major markets like the US and the EU imposing tariffs and other trade barriers, this strategy could escalate trade tensions with some of China's largest trading partners, potentially complicating Beijing's economic recovery plans.