EU expected to hit Chinese electric cars with tariffs – BBC News

With China accused of selling electric cars at artificially low prices, the European Union is widely expected to hit them with tariffs this week.

The BYD Seagull is a small, cheap, neatly designed electric vehicle (EV). An urban runabout that won’t break speed records, but won’t break the wallet either.

In China it has a starting price of 69,800 yuan ($9,600; £7,500). If it goes to Europe, it is expected to cost at least double that due to safety regulations. But that would still be very cheap by electric car standards.

This is a worrying prospect for European manufacturers. They fear the little seagull will become an invasive species, one of a number of Chinese-built models poised to colonize their own markets at the expense of native vehicles.

China’s domestic automotive industry has grown rapidly over the past two decades. Its development, along with that of the battery sector, was a key part of the ‘Made In China 2025’ strategy, a ten-year industrial policy launched by the Communist Party in Beijing in 2015.

The result is the breakneck development of companies like BYD, which are now competing with Tesla for the title of the world’s largest electric vehicle manufacturer. Established giants such as SAIC, owner of the MG brand, and Volvo’s owner Geely, have also become major players in the EV market.

However, this is a cause for concern for policymakers in Europe and the US. As Chinese brands have sufficient excess capacity and enter international markets, they fear that their own companies will not be able to compete. They argue that heavy subsidies for domestic production allow Chinese companies to keep prices at levels that other companies find difficult to match.

According to a report by the Swiss bank UBS, published in September, the Chinese advantage is real. It suggested that BYD could produce cars at around 25% lower costs than the best of existing global automakers.

It said BYD and other Chinese companies were “poised to conquer the global market with high-tech, low-cost electric cars for the masses.”

Meanwhile, the Alliance for American Manufacturing warned earlier this year that the introduction of cheap Chinese cars could be an “extinction-level event” for the US auto industry. It called for a “dedicated and concerted effort to reverse those imports,” concluding that there was “no time to lose.”

Last month the US took decisive action. The Biden administration has increased its import tariffs on Chinese battery-powered cars from 25% to 100%. US sales of Chinese-made electric cars are currently negligible; with the new rates they will probably stay that way.

The move was part of a broader package of measures targeting imports from China, which Beijing has condemned as “naked protectionism.”

At the same time, the US subsidizes its own auto industry through tax breaks that make domestically produced vehicles cheaper to purchase.

The EU appears to be taking a more moderate approach, despite harsh rhetoric.

In her State of the Union address last September, European Commission President Ursula von der Leyen announced an investigation into Chinese imports.

“Global markets are now flooded with cheaper Chinese electric cars,” she said.

“Their price is kept artificially low by enormous state subsidies. This disrupts our market.”

The first results of that research are now within reach.

It is widely expected that the Commission will temporarily increase tariffs on electric vehicles imported from China from the standard level of 10% for imports from third countries to between 20 and 25%.

According to Matthias Schmidt of Schmidt Automotive Research, this would be a much more proportionate response than the American action.

“The 100% tariff is just pure protectionism, regressive and stifles innovation, and prevents a competitive landscape for consumers,” he says.

“If the EU imposes tariffs of no more than 25%, it will be more about creating a level playing field and offsetting the 30% cost advantage that Chinese manufacturers have.”

Nevertheless, tariffs can both hurt and help European companies.

First, they wouldn’t just affect Chinese brands. For example, BMW’s iX3 electric SUV is built at a factory in Dadong and exported to Europe. The company also plans to import large quantities of Chinese-made electric Minis.

Both models would be subject to the tariffs, requiring the manufacturer to absorb the additional costs or increase prices. The American manufacturer Tesla would also be affected, because it builds cars in Shanghai for export to Europe.

Secondly, although European brands have invested heavily in production in China in recent years, working with local manufacturers, a number of them still export high-quality models to the Chinese markets.

If China were to retaliate by imposing its own high tariffs, these shipments could be targeted.

No wonder, then, that executives at European automakers have been decidedly lukewarm about the EU initiative.

Earlier this year, Volkswagen Group CEO Oliver Blume warned that the introduction of tariffs was “potentially dangerous” due to the risk of retaliation.

Last month, BMW boss Oliver Zipse told investors “you could be shooting yourself in the foot very quickly” by joining trade fights, adding “we don’t think our industry needs protection”.

Mercedes-Benz CEO Ola Källenius has gone a step further and publicly called for tariffs on Chinese EV imports to be reduced rather than increased, to encourage European companies to do a better job.

Support for EU research comes largely from France. But even among French manufacturers there are doubts whether tariffs are the right approach.

Carlos Tavares, head of the Stellantis group which includes Peugeot, Citroen, Vauxhall/Opel and DS, has described them as “a major pitfall for countries that follow that path”.

He has warned that European carmakers are in a “Darwinian” battle with their Chinese rivals, something that is likely to have social consequences as they cut costs in a bid to compete.

Renault CEO Luca de Meo, meanwhile, says: “We are not in favor of protectionism, but competition must be fair.”

He has called for the adoption of a strong European industrial policy to promote the sector, drawing inspiration from US and Chinese policies – in a bid to compete with both.

Meanwhile, Britain is watching with interest. The head of the country’s trade watchdog, the Trade Remedies Authority, has previously made it clear he would be willing to launch an investigation into Chinese electric vehicles if ministers or the industry wanted it.

No such request has reportedly been made so far. Ultimately, as a deeply political issue, it will be something that the next government will have to address after the elections.

What higher tariffs could give Europe is more time for both automakers and policymakers to adapt to the challenge from China.

But many in the industry recognize that if Europe wants to remain a major player in the global automotive sector, it will have to do much more than just build barricades at home.