European automakers brace for China’s response to EV tariff

The European Union has begun a temporary increase in punitive tariffs on Chinese electric vehicles, and European automakers are unsure when the expected retaliation will arrive or how severe it will be.

The EU raised tariffs to almost 48% on Thursday, with SAIC’s MG facing 37.6% duties on top of the existing 10%. Geely and BYD attracted increased levies of 19.9% ​​and 17.4%, respectively. Other producers that cooperated with the EU investigation face an average duty of 20.8%, while non-cooperating producers face a surcharge of 37.6%.

The tariffs are due to be finalized in November, suggesting that negotiations could change the decision. EU member states could block additional tariffs, imposed after it was decided that Chinese subsidies to its EV industry were hurting European carmakers.

Some experts are puzzled by the EU’s decision to possibly trigger a tariff war with China, as it appears to be playing with a weak hand. The EU has decided that its carmakers will only sell new electric vehicles until 2035, with tightening quotas starting at 20% this year and quickly moving to around 80% by 2030.

The problem is that electric car sales in Europe have reached a level of around two million this year, and most forecasts estimate that they will reach only seven to eight million by 2030. Seven million is only about 50%, seriously short of the required 80%. Limiting the growth of Chinese electric car imports therefore calls into question the EU’s objectives.

Germany in particular is also vulnerable to any Chinese retaliation, according to Professor ManMohan Sodhi of Britain’s Bayes Business School.

“The German car industry has made a last desperate plea to the EU not to impose these tariffs. The German automotive industry exports three times more than it imports from China through cars and four times more through parts. The EU is now challenging China’s tit-for-tat response,” Sodhi said.

The Chinese government’s initial anecdotal response appeared to be relatively mild, aimed at raising tariffs mainly on Germany’s high-value gasoline-powered sedans and SUVs.

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

German manufacturers such as Mercedes and BMW pointed to the benefits of free trade, while Germany supported a negotiated settlement with China.

China has hinted at widening its range of possible retaliation to include major European revenues such as French wine, cognac and agricultural products, Toulouse-France-based Airbus Industrie airliners and pork exports led by Spain, the Netherlands, Denmark and France.

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

“I would expect China to respond quickly, first with strong words, and perhaps later, if the behind-the-scenes discussions don’t pan out, to resolve the situation, actions,” Groot said in an email.

Groot says demand for EVs in Europe has been held back by high prices, which has held back investment in manufacturing, which the Chinese have taken advantage of.

“The UK and Europe need stronger incentives to support demand (tax incentives) and offset public charge taxes compared to domestic charging, while investing in the car manufacturing supply chain to catch up with Chinese manufacturers who are currently ahead. from more established Western manufacturers,” said Groot.

Meanwhile, GlobalData analyst Sammy Chan said that even if the punitive tariff regime is maintained, sales of China’s cheaper electric cars will grow.

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 nearly triple the price in China, Chan said.

Rhodium Group recently said that at rates below 50%, China’s EVs will still be profitable due to their more efficient production. Investment bank UBS said it gives companies like BYD a 30% cost advantage.

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