Many EU-based automakers are not happy about the
announcement of new tariffs against Chinese EV imports.
This week's news that the EU intends to issue import tariffs of
up to 38.1% on Chinese battery electric vehicle (BEV) imports has
been met with a wide spectrum of reaction across the automotive
industry and the world of politics.
What is perhaps most extraordinary about the development is that
it runs counter to the wishes of many European carmakers. The EU
made the announcement through its legal arm, the European
Commission, which has been conducting an investigation since
October into subsidies provided by the Chinese government to
domestic automakers for expanded BEV development. The Commission
believes these subsidies are unfair and illegal.
In its statement of intention, the Commission said its
investigation was ongoing and that it “has provisionally concluded
that the battery electric vehicles (BEV) value chain in China
benefits from unfair subsidization, which is causing a threat of
economic injury to EU BEV producers.”
The investigation is also looking into the potential impact on
importers, users and consumers of BEVs in the EU. The Commission
has asked for discussions with the Chinese government to see if
these issues can be resolved in a manner which meets with World
Trade Organization (WTO) guidelines. If those discussions yield no
results, or do not take place, then what the Commission describes
as provisional countervailing duties would be introduced from July
4, 2024.
German manufacturers and the German government — who one
would think have a lot of sway in lobbying the European Commission
— are united in their opposition to this plan. Why? Because of
the near certainty that reciprocal tariffs will be implemented.
China is a particularly large market for the big-three volume
premium German carmakers: Mercedes-Benz, BMW and Audi.
While those carmakers have spent billions in installing
production in China, they also import vast quantities of vehicles
that are built in Germany, the United States and elsewhere into
China as well. These imported models tend to be those brands'
high-price-point super premium models. They also happen to be their
most profitable.
BMW CEO Oliver Zipse commented that “Protectionism risks
starting a spiral: Tariffs lead to new tariffs, to isolation rather
than cooperation. From the BMW Group's point of view, protectionist
measures, such as the introduction of import duties, do not
contribute to successfully compete on international markets.”
His counterpart at the Mercedes-Benz Group Ola Källenius added,
“We do not need increasing barriers to trade. We should work on
dismantling trade barriers in the spirit of the World Trade
Organization.”
The Volkswagen (VW) Group also highlighted that this EU
directive is the opposite of what the European market is seeing
— a slowdown in BEV buying now that the low-hanging fruit of
business/fleet buyers and early adopters has been picked. And it
will not only be Chinese OEMs that will potentially be subject to
these tariffs — Tesla, BMW, Volvo, Polestar and Dacia are all
building cars in China that they are importing into Europe as well.
Despite being European manufacturers, they will have to pay extra
to sell these cars in their home region markets.
German automakers' opposition, and indeed that of the German
government representing them, to the tariffs is understandable, but
it is by no means universal. Adolfo Urso, Italy's Minister of
Economic Development, said that he welcomed the EU's announcement,
likely seeing it as an opportunity to defend the country's own
industry while attracting investment from some of the affected
automakers with which it has previously held discussions.
The dichotomy that exists between the reactions of some
governments and carmakers over the tariff row can possibly be best
summarized by Carlos Tavares, the CEO of Stellantis. A few weeks
ago he said that tariffs were “a major trap for countries that go
down that path,” while warning that European carmakers are in a
“Darwinian” struggle with their Chinese rivals, something that
could have massive social consequences as jobs are cut in order to
compete.
Yesterday at Stellantis' Investor Day, Tavares reiterated that
he believes a strong protectionist stance taken by various
countries only hurts competitiveness, noting that the only way to
win is to figure out how to truly compete. The approach to China,
he said, requires going on the offensive with better costs and
speed.
Tavares added that most Chinese automakers have a 30% cost
advantage, based largely in competitive electric architectures, but
he also said that it is possible for automakers like Stellantis to
catch up. Although protectionism may help the European industry in
the short term, it will not encourage the evolutionary step it
needs to survive in the long term.