Tariffs on Chinese-made EVs will impact automakers in Europe
and China, plus the global supply chain.
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European Union provisional tariffs on mainland Chinese battery
electric vehicles take effect
The European Commission put provisional tariffs on Chinese
battery electric vehicles (BEVs) as of July 5, 2024. An
investigation, which began in September 2023 and concluded in June
2024, by the EU's legal arm determined that the BEV value chain in
China benefits from unfair subsidization—causing a threat of
economic injury to European Union (EU) BEV producers. The
investigation also examined the likely consequences and impact of
these tariffs on BEV importers and consumers in the EU.
The commission imposed different levels of duty on the three
main Chinese OEMs—SAIC, BYD and Geely—influenced by what
they described as the amount of cooperation received from each,
among other factors. The full breakdown is:
- BYD is subject to 17.4% additional duty for its Chinese-made
vehicles sold in the EU. - The individual duties for Geely and SAIC are 19.9% and 37.6%,
respectively. - Other BEV producers in China who cooperated but were not as
thoroughly investigated are subject to a 20.8% weighted average
duty. - The duty for other non-cooperating companies is 37.6%.
These provisional duties will apply for a maximum duration of
four months, during which period EU member states will vote and a
final decision will be made. If approved, definitive duties would
be in place for five years. Tesla is the largest China-based
exporter to the EU by volume, and it may receive an individually
calculated duty rate at the definitive stage.
There has been pushback from the mainland China automakers
affected, including SAIC who has requested a hearing. SAIC insists
that its cooperation and evidence was unfairly evaluated by the
Commission.
With the US imposing 102.5% tariffs on Chinese EVs and Canada
considering similar duties, these measures imposed by the EU add to
China's concerns that domestically based companies will face more
trade barriers in global markets and will be pressured to shift
production somewhere else. Turkey has joined the countries imposing
a tariff, while in Brazil the regional automakers' association is
now calling for a 35% import tax.
However, perhaps counterintuitively, German automakers and the
industry
oppose the import tariffs. The German Association of the
Automotive Industry (VDA) has argued that the tariffs would not
only affect Chinese manufacturers but also European companies and
their joint ventures in China in particular. “This is because a
large proportion of vehicle imports from China into the EU come
from European and American manufacturers,” said the VDA.
The association further warned of the possibility of
countermeasures from China; one potential is reports that Chinese
automakers have requested the country's government to impose import
tariffs on EU-made vehicles with large engine displacements. In
2023, China was the third-largest export market for German-made
cars, in terms of units, after the United States and the United
Kingdom. Volkswagen and BMW also issued statements opposing the
duties. Outside of Germany, Stellantis CEO Carlos Tavares expressed
similar criticism.
The hefty duties will slow down the pace of some smaller-scale
mainland China-based automakers seeking to launch EV sales in
Europe with exported models. Major Chinese carmakers such as BYD,
however, are determined to expand into the global market.
For these larger players, production outside of China may be an
option that skirts tariffs. BYD is expanding, including recently
opening a plant in Thailand, considering a plant in Mexico,
developing a manufacturing base in Brazil, setting up a European
production plant in Hungary, and working with the Turkish
government to set up a site there.
While the duties are meant to protect businesses long-term,
there are often unintended consequences of such actions which can
take years to reveal themselves. The reaction of the European
automakers also demonstrates the complexity, as the tariff has
potential to hurt their business in both the EU and China. Western
automakers planning or already exporting from mainland China to
global markets, including the EU, North America and Brazil, will
also have to rethink sourcing plans.
In the immediate term, consumers in the EU may well face higher
prices for BEVs. Tesla, MG and China's NIO have already indicated
they may raise European prices of their Chinese-made models
following the EU's decision. China may also retaliate with tariffs
against goods or services outside the auto industry.
As a share of mainland China exports, Europe has grown from
seeing less than 0.5% of exports from the country in 2020 to 4.4%
in 2023; Europe is the largest region for mainland China exports
today, followed by Middle East/Africa, at 1.6%, according to the
June 2024 S&P Global Mobility light vehicle production
forecast. In 2020, nearly 93% of the vehicles produced in mainland
China remained in the country. In 2023, 84% of the vehicles
produced in the country were sold there. Over that same period,
light vehicle production in mainland China grew 23%, from 23.3
million units in 2020 to 28.8 million in 2023.
Battery manufacturing ups and downs
Increasing battery manufacturing is among the elements needed
for BEVs to be successful, in the sense that it contributes to
reducing cost. However, BEV adoption is in a particularly choppy
phase, likely to last through 2026, with inconsistent and uneven
growth.
Against that backdrop, Swedish battery company Northvolt
recently announced a strategic review of its business, due to be
completed in third quarter 2024, evaluating timelines and capital
allocation. The company reported 19% growth in revenues in 2023, to
US $128 million, but also 106% increase in adjusted losses, to US
$569 million. The company's CEO indicated that there may be a
refocus to plans already in process, with projects not yet started
being reined in for now.
On the other hand, Hyundai and LG Energy Solutions inaugurated
their joint venture battery plant in Indonesia on July 2
(production started earlier in the second quarter). The plant has
an annual capacity of 10 gigawatt hours (GWh). In the US, a joint
venture between PACCAR, Daimler Truck and Cummins, called Amplify,
broke ground on a new plant due for production to start in 2027
with annual production capacity of 21 GWh. And Stellantis announced
a collaboration with a French research organization looking to
develop next-generation battery cell technology, though it's
unclear when that project will result in production-ready
technology.
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