Key takeaways from the EU's decision to impose high tariffs on Chinese EVs

Key takeaways from the EU's decision to impose high tariffs on Chinese EVs

Automotive News Europe — 2024-07-05

Automotive Industry

A document lays out the European Commission's case for tariffs on EVs built in China, with a top rate of about 48%.

After a nine-month investigation, the EU has decided to impose provisional tariffs on electric vehicles imported from China on top of the existing 10% import duty, creating a top rate of about 48%. The move could potentially set off a trade war that would hit German automakers BMW, Mercedes-Benz and Volkswagen that count China as their biggest single market.

The European Commission issued a 208-page implementing regulation on 4 July 2024.

Here are some key takeaways: 

The European Commission saw an urgent threat

Chinese-built EVs have taken substantial market share in recent years, but only SAIC’s MG brand has had meaningful sales in Europe among China-based brands – and other Chinese brands have already scaled back their European ambitions. Nonetheless, the EU saw a clear and present danger to its home market. “The development of the subsidized imports would pose an imminent threat to an already vulnerable Union industry,” the commission wrote in the implementing regulation.

It found that China had 50% excess capacity and was “export oriented,” and that the US is closed off because of its own tariffs. Comparable Chinese-built EVs were undercutting European models by 12.7% on price, one effect of which was to force European makes to cut their own prices to unprofitable levels.

Plug-in hybrids got a break, but not range-extenders

The tariffs apply to cars that are “propelled solely by one or more electric motors, including those with an internal combustion range extender,” the EU said. Range-extender hybrids, or EREVs, have a small ICE that charges a fairly large battery pack, and they have exploded in popularity in China, with ranges of near 1,000 km now possible. European brands have largely avoided them, with a few exceptions such as the BMW i3, although Ford and others have said they could be a promising solution. Plug-in hybrids from China are exempt, even as battery size increases and electric-only range approaches or exceeds 100 km (62 miles) for new ones.

China had a long-term plan to support the EV value chain

Even as far back as 2010, the Chinese government had designed electrified vehicles as a strategically important economic activity, through its five-year plans and specific new-energy vehicle (NEV) directives down to the provincial level.

These plans contain very specific targets and mechanisms such as preferential financing, injections of capital and even land grants to build up the industry to the point where “key and core technologies will have been controlled by us” and “a group of large enterprises having international influence and a group of vigorous small- and medium-sized enterprises will have been formed.

China could put these plans into action because the “Chinese government has a substantial degree of control over any aspect of economic activity, which forces companies act as an arm of the state rather than maximizing profits,” the EU said.

Tesla, BMW face lower tariffs; SAIC punished

The Commission calculated additional tariffs based on degrees of cooperation from automakers and their suppliers. The regulation repeatedly cites instances of non-cooperation and even obstruction from Chinese companies and banks.

These are the provisional tariffs:

  • BYD, which is vying with Tesla to be the largest maker of full-electric vehicles, is facing 17.4% additional duties;
  • Geely, the owner of Volvo, Lotus, LEVC and half owner of Smart, is facing 19.9%; 
  • SAIC, whose MG brand has taken substantial market share in European in the past two years, is facing 37.6% tariffs;
  • Other cooperating companies (including Tesla and BMW, which export EVs to Europe from China) face a 20.8% tariff, while all others (assumed to be noncooperating) face 37.6%. 

Put another way, the commission calculated that SAIC received total subsidies of 34.4%, while Geely’s figure was 19.7%  and BYD’s 15.1%.

The Commission took seriously the threat of retaliatory tariffs

All European automakers and suppliers were granted anonymity, even those that did not ask for it. The Commission said there was “evidence of a significant possibility of retaliation in each individual case.

Batteries were a top priority for the Chinese government

The EU found that Beijing “has set out a system of clear and constant control and monitoring of the pricing of batteries and their inputs to ensure that the BEV industry can source them at cheap prices and in sufficient quantities.” It cited lithium in particular, which is a main component of cheaper lithium iron phosphate battery chemistry.

Chinese EV makers could alter strategies

The provisional tariffs will be in place until 3 November 2024, when the EU could impose permanent duties. There will be intense discussions until then, but watch for moves from Chinese automakers on pricing, market share, model launches and plans to produce in Europe. Beijing could also launch its own retaliatory tariffs on European cars or other products. Already, SAIC, which faces the largest tariff burden, has called for hearings with the European authorities, saying EU officials ignored some of its information and counter-arguments during the investigation. And Xpeng said this week that it was considering European production.

One potential worry for Chinese brands is that when France removed subsidies from imported EVs in 2024 -- a move widely seen as targeting China -- sales of Chinese-built models such as the MG4 and Dacia Spring fell sharply.