European carmakers prepare to respond to China’s electric vehicle tariffs

The European Union has imposed preliminary fine increases on Chinese electric vehicles. European carmakers do not know when the expected retaliations will come and how severe they will be.

The EU on Thursday raised tariffs to nearly 48%, with SAIC’s MG taking a 37.6% tariff on top of the existing 10%. Geely and BYD were hit with higher duties of 19.9% ​​and 17.4%. Other manufacturers that cooperated with the EU investigation faced an average duty of 20.8%, while non-cooperating manufacturers faced an additional 37.6%.

The tariffs will become final in November, suggesting negotiations could change the decision. EU member states could block the additional tariffs, which were imposed after it decided Chinese subsidies for its EV industry were hurting European automakers.

Some experts are surprised by the EU’s decision to potentially launch a tariff war with China, as it looks like it’s playing with a weak hand. The EU has decided that its automakers will only be allowed to sell new electric vehicles from 2035, with a tightening of the quota starting this year at just over 20% and quickly rising to around 80% by 2030.

The problem is that electric vehicle sales in Europe have plateaued at around two million this year, and most forecasts assume that will be just seven to eight million by 2030. Seven million is only about 50%, well short of the required 80%. So curbing the growth of Chinese EV imports calls into question the EU’s goals.

According to Professor ManMohan Sodhi of the British Bayes Business School, Germany is particularly vulnerable to Chinese retaliation.

“The German auto industry has made a last desperate plea to the EU not to impose these tariffs. After all, the German auto industry exports three times as much as it imports from China in the form of cars and four times as much in the form of parts. The EU is now inviting China’s tit-for-tat response,” Sodhi said.

The Chinese government’s initial unofficial response appeared relatively mild and focused on raising tariffs on mainly German, expensive, gasoline-powered sedans and SUVs.

“China was hoping that the EU would take the hint and not get into a tariff war. As in any tariff war, the Chinese will now be forced to respond forcefully, even though the move is not in their economic interest,” Sodhi said in an email exchange.

German manufacturers such as Mercedes and BMW have all pointed to the benefits of free trade, while Germany supports a negotiated solution with China.

China has indicated it wants to expand the scope of possible retaliatory measures to countries that generate large revenues in Europe, such as French wine, cognac and agricultural products, Airbus Industrie aircraft from Toulouse, France, and pork exports, mainly by Spain, the Netherlands, Denmark and France.

Thom Groot, CEO of The Electric Car Scheme, expects a quick response from the Chinese.

“I expect China to respond quickly, first with strong words, and perhaps later, if it does not appear that the behind-the-scenes talks will resolve the situation, with actions,” Groot said in an email.

According to Groot, demand for electric cars in Europe is being slowed down by high prices. This has led to a decrease in investment in production, which the Chinese are taking advantage of.

“What the UK and Europe need are stronger incentives to stimulate demand, such as (tax breaks) and equalising taxes on public charging points compared to domestic charging, while at the same time investing in the car manufacturing supply chain to catch up with Chinese manufacturers, who currently have a head start on more established western manufacturers,” Groot said.

GlobalData analyst Sammy Chan, meanwhile, said that even if the penalty tariff system remains in place, sales of cheaper electric cars in China will increase.

Chinese automakers have developed cost advantages through vertical integration and control of key components such as batteries. BYD sells products in Europe for sometimes double or almost triple the price in China, Chan said.

Rhodium Group recently said that Chinese EVs would still be profitable at tariffs below 50% because of their more efficient production. Investment bank UBS has said that this gives companies like BYD a 30% cost advantage.

“Despite the tariffs, we expect further growth from Chinese brands in the economy segment. Since European brands currently lack the efficiency and lower cost structure of Chinese BEV makers, they have to launch entry-level BEVs later to avoid losing money, giving Chinese BEVs a clearer run in these segments,” Chan said.