Motors

What will the EU’s new Chinese car tariff mean for buyers?

New tariffs will vary by manufacturer, but European car makers deem the measures pointless, even counterproductive

Electric cars waiting to be loaded onto a ship are seen stacked at the international container terminal of Taicang Port in China. Photograph: by AFP

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Neil Briscoe
Wed Jun 19 2024 - 06:00

The EU has gone ahead with its much-floated plan to impose higher tariffs on imported Chinese electric vehicles. The new taxes on such cars are as much as 38.1 per cent, depending on the model.

Although the move had been expected, and indeed has been repeatedly flagged by EU lawmakers, one unusual aspect is that the tariffs vary according to the car maker, as the EU seeks to target those companies it judges to have received proportionally more state aid from the Chinese government.

The company getting off easiest is BYD, which has already made significant inroads into the European and Irish car markets. BYD cars will be hit with a 17.4 per cent tariff – on top of the standard 10 per cent import tariff – while those from Geely (which owns Lotus, Polestar and Volvo) will be hit with 20 per cent extra.

The worst-affected, for now, is Shanghai Automotive Industrial Corporation, or SAIC, which is best-known as the company behind the revived MG brand. It’s products will now carry a huge 38.1 per cent tariff.

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There are two other categories: a 21 per cent extra tariff for electric cars from manufacturers that co-operated with the EU’s investigation into state subsidies, and a 38.1 per cent tariff for those that did not.

“This is based on clear evidence of our extensive investigation and in full respect of WTO [World Trade Organisation] rules. We will now engage with Chinese authorities and all parties with a view to finalising this investigation,” said Valdis Dombrovskis, the European Commission’s executive vice-president in charge of trade. “Our goal is to restore the level-playing field and ensure that the European market remains open to electric vehicles producers from China, provided that they play by globally agreed trade rules.”

[ Shares jump in BYD despite European tariffs on Chinese EVs ]

The Chinese government and car makers will now have four weeks, under WTO rules, to challenge the findings of the EU’s investigations and its extra tariffs. It is expected that China will add tit-for-tat taxes to imported European goods, from cars to luxury items such as brandy, wine and clothing.

While the EU will be hoping that the new tariffs will slow down the advance of Chinese car makers in the European market, and allow breathing room for home-grown companies, experts are divided over whether or not the measures will be effective.

A report in Automotive News suggested that even the higher tariff wouldn’t be enough to seriously dent Chinese car makers’ ambitions – they’re simply too profitable to care, and could easily absorb an extra EU tariff without passing anything on to the consumer, or passing on only a small fraction of the extra costs.

Equally, Chinese brands are already planning European factories, which would be likely to allow them to entirely sidestep any potential tariffs. BYD is already prepping a factory in Hungary, and its head of European operations (and one of the most senior executives in the Chinese car industry), Stella Li, says the company is looking at a second European plant if all goes to plan. Volvo – owned by Geely – has announced that it is shifting some production of its electric EX30 and EX90 models to a factory in Belgium to avoid any issues with tariffs.

[ EU hopes cost of tariffs on Chinese EVs will not hit consumers ]

According to environmental think-tank Transport & Environment (T&E), any tariffs that are imposed won’t make much of a difference in the long term anyway. Julia Poliscanova, senior director for vehicles and emobility supply chains at T&E, says: “Tariffs will force car makers to localise EV production in Europe, and that’s a good thing because we want these jobs and skills. But tariffs won’t shield legacy car makers for long. Chinese companies will build factories in Europe and, when that happens, our car industry needs to be ready.”

The problem is that raising tariffs on Chinese-made cars risks upsetting the European car brand applecart too. Many of the cars imported to Europe from China are actually produced and imported by European or American brands – BMW, Tesla, Dacia and Polestar all produce cars in China for European and indeed global sale.

Many brands are now scrambling to diversify production as the new tariffs loom. For instance, Polestar is already producing its new 3 large SUV model in the US as well as China, while the new Polestar 4, which will be launched later this year, will be made in both China and South Korea. BMW is changing tack, too, moving production of the Neue Klasse replacement for the Chinese-built iX3 to Hungary for 2025. BMW boss Oliver Zipse has warned against adding extra tariffs to Chinese-built cars, saying at the company’s recent earnings call, “We don’t think that our industry needs protection. You can easily endanger that advantage by introducing import tariffs.”

That view was echoed by Volkswagen brand boss Thomas Schafer who told a conference in London that “there will always be some sort of retaliation.”

China's minister of commerce, Wang Wentao. Photograph: Alet Pretorius/Pool/AFP via Getty

Chinese officials have already warned that any action by the EU to increase tariffs on electric cars will trigger a response in kind. Chinese commerce minister Wang Wentao has said that the EU’s investigation into Chinese EV sales was based on false pretexts regarding China’s industrial capacity and its subsidies to car makers.

Stella Li, of BYD, recently told The Irish Times that subsides from the Chinese government are not paid to car companies – rather they are paid to customers in the form of incentives and price breaks, leaving the car makers to compete for trade. Li says any western car maker establishing a manufacturing presence in China would be in line for even better incentives than a home-grown car maker.

[ Stella Li of Chinese car maker BYD: ‘We don’t want to engage in a price war’ ]

Transport & Environment’s view is that there’s very little point in wrangling over tariffs and car sales when China is effectively the world’s one-stop-shop for the cars’ most important component: batteries.

“Investments in lithium-ion batteries are also at risk as cells manufactured in China are at least 20 per cent cheaper than in Europe, and Chinese battery-makers are ahead on technology and supply chains.

The US is also attracting battery investments through generous subsidies. Industrial measures – such as subsidies for clean and circular manufacturing and “Made in EU” targets – are needed to create a pull for local cell production.

“As neither of these are currently in place, tariffs for battery cells should be considered. Compared to the US and China, the EU currently has the lowest battery cell tariffs,” says Julia Poliscanova.

“Batteries are the new solar. China is ahead, and its state-backed companies have huge overcapacity,” she says. “If we are serious about a diverse and resilient battery supply chain in Europe, we need to put our money where our mouth is right now. We’re not going to get a second chance.”

Last year nearly a fifth (19.5 per cent) of electric cars sold in Europe were made in China.

With European car makers consistently struggling to provide more affordable electric models for customers in the EU, the Chinese have filled the gap, hitting the market with affordable, efficient electric cars such as the BYD Dolphin and MG 4.

That success doesn’t look like ending any time soon; prior to the imposition of the new tariffs, it was expected that Chinese-made cars will make up 25 per cent, one quarter, of all electric models sold in Europe in 2024.

ChinaEuropean UnionWorld Trade OrganisationBYDVolvo GroupPolestar