Chinese electric car makers face new tariffs from European Union

Image source, Getty Images

Image caption, MG owner SAIC is one of the carmakers hardest hit by the new tariffs

  • Author, Joao da Silva
  • Role, Business reporter

The European Union has increased tariffs on Chinese electric vehicles as Brussels moves to protect the Union’s auto industry.

The new tariffs for individual manufacturers range from 17.4% to 37.6%. These amounts are on top of the 10% already imposed on all electric cars imported from China.

This could increase the price of electric cars in the EU, making them less affordable for European consumers.

The move is also a major blow to Beijing, which is already locked in a trade war with Washington. The EU is the largest overseas market for China’s EV industry and the country is counting on high-tech products to revive its ailing economy.

EU officials say this import surge was fueled by “unfair subsidies” that allowed electric cars made in China to be sold at much lower prices than cars made in the EU.

China denies this repeated accusation by the US and EU: Beijing is subsidizing overproduction to flood Western markets with cheap imports.

The new charges go into effect on Friday, but are currently preliminary as the investigation into Chinese state aid for the country’s EV makers continues. They are unlikely to be imposed until later this year.

Who are the potential winners and losers in this trade conflict?

It is not only Chinese brands that are affected by the measure. Western companies that make cars in China have also come under scrutiny by Brussels.

By imposing tariffs, Brussels says it is trying to correct what it sees as a distorted market. The EU’s move may seem tame compared to a recent U.S. move to raise tariffs to 100%, but it could be much more drastic. Chinese electric vehicles are a relatively rare sight on U.S. roads, but far more common in the EU.

The number of electric cars sold by Chinese brands in the EU rose from just 0.4% of the total electric car market in 2019 to almost 8% last year, according to figures from influential green group Transport and Environment (T&E), based in Brussels.

Patryk Krupcala, an architect from Poland who expects to take delivery of a brand new Chinese-made MG4 in two weeks, told the BBC: “I chose an MG4 because it’s quite cheap. It’s a very fast car and it’s rear-wheel drive, like my previous car, a BMW E46.”

T&E project companies such as BYD and Shanghai Automotive Industry Corporation (SAIC), the Chinese owner of the former British brand MG, could reach a market share of 20% by 2027.

But not all electric cars produced in China are equally affected by the new tariffs.

Winners and losers

They were calculated based on estimates of how much state aid each company received, while companies that cooperated with the study saw the levies they had to pay reduced. Based on these criteria, the European Commission imposed individual levies on three Chinese EV brands: SAIC, BYD and Geely.

SAIC hit by highest new tariff of 37.6%. State-owned SAIC is the Chinese partner of Volkswagen and General Motors. It also owns MG, which produces one of Europe’s best-selling electric vehicles, the MG4.

“The price of non-compliance is a heavy blow for SAIC, which derives 15.4% of its global revenue from electric car sales in Europe,” said Rhodium Group, an independent research firm.

For Mr Krupcala, who bought his MG4 before the tariffs were introduced, the EU’s move makes little difference: “I don’t care that much about the tariffs. I have a nice car with a seven-year warranty.”

For China’s largest electric vehicle manufacturer BYD, it’s a different story, as they have to pay an additional 17.4% import duty on vehicles they ship from China to the EU.

That is the lowest increase and according to research by the Dutch bank ING, this will give the car manufacturer “an edge on the European market”.

Luís Filipe Costa, an insurance industry executive from Portugal who recently purchased a BYD Seal, says price was one of the decisive factors in choosing his new car.

But he added that even if the European Commission’s new tariffs had already been in place, he would still have chosen BYD, because “other brands would also be affected”.

Image caption, Portuguese executive Luís Filipe Costa chose BYD Seal over Western brands

Geely, owner of the Swedish Volvo, will face an additional tariff of 19.9%.

According to Spanish bank BBVA, the company “will still export profitably to the EU,” but “profits will fall significantly.”

Other companies, including European carmakers that have factories in China or through joint ventures, will also have to pay more to introduce electric cars in the EU.

Those who are deemed to have cooperated with the research will be given an additional task of 20.8%while EU researchers who are non-cooperative will pay the higher rate of 37.6%.

Tesla, based in the US and the largest exporter of electric vehicles from China to Europe, has asked for an individually calculated tariff. EU officials have said that the tariff will be determined at the end of the investigation.

However, the company has posted a message on a number of European websites saying prices for the Shanghai-produced Model 3 could increase as a result of the new tariffs.

Last year, businessman Lars Koopmann, who lives in the automotive industry country Germany, bought a Tesla Model Y produced in China.

Mr Koopmann says he particularly appreciates the car’s high-tech features, such as the large touchscreen.

“The price was also an important factor that set it apart from the German premium brands,” said Mr Koopmann.

“If the tariffs had been there, they would always have influenced my decision.”

Localize production

While some exporters in China will be better off than others, the European Commission’s plans show that all will face higher costs when shipping to Europe.

The hardest hit “will be SAIC brands such as MG… and also joint ventures between foreign and Chinese companies in China, which often have smaller profit margins on the cars they export to Europe,” Rhodium said.

“The biggest beneficiaries of the tariffs are Europe-based manufacturers with limited exposure to China, such as Renault.”

In other words, the tariffs are likely to have the desired effect: they will reduce the number of Chinese-made electric cars entering the region and relieve pressure on local manufacturers.

This measure has another consequence: a number of large Chinese EV companies are planning to increase production capacity in the EU. This could protect them from the new tariffs.

Construction of BYD’s first European factory is underway in Hungary, with production expected to start late next year.

Chinese automaker Chery recently signed a joint venture agreement with a Spanish company, under which the two companies will produce electric cars and other types of vehicles in Barcelona.

And SAIC is keen to secure a location for its first factory in Europe.

“It is a well-thought-out plan to encourage companies to move their investments to the EU, rather than relying on exports from China,” said Bill Russo of Shanghai-based consultancy Automobility.

“The fact that some companies pay more tax than others is a signal that they will increase or decrease the fine depending on the extent to which the company invests in the EU.”

The Chinese government was early in its commitment to electric vehicles.

According to the Center for Strategic and International Studies, more than $230 billion (£181 billion) in state aid was pumped into the sector between 2009 and 2023.

This has made the EV industry a global leader.

According to the International Energy Agency, China accounted for more than 60% of global sales of new electric cars last year.

While the vast majority of electric cars produced in China are sold domestically, overseas markets, particularly Europe, are becoming increasingly important.

“Export is the profitable segment,” said Gregor Sebastian, senior analyst at Rhodium.

“The EU tariffs will hurt China’s EV industry as these exports help offset losses from China’s domestic price war.”

Meanwhile, the world’s second-largest economy is grappling with the economic slowdown caused by the pandemic and the ongoing real estate crisis.

As China grapples with lower domestic consumption and investment, the country is trying to “export” its way out of the crisis, said Alicia Garcia-Herrero, chief Asia Pacific economist at investment bank Natixis.

And Beijing is taking another big step into electric vehicles by making the industry one of its “New Three” growth engines — a government blueprint to revive the economy, which also relies on exports of batteries and renewable energy.

But with major markets like the US, EU and others imposing tariffs and other barriers, it appears China’s latest gamble could exacerbate trade tensions with some of its largest trading partners.

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