The European automakers are uncertain about the timing and severity of the anticipated retaliation following the European Union’s imposition of temporary penalty tariff rises on Chinese electric vehicles.
With SAIC’s MG subject to a 37.6% duty on top of the current 10% tariff, the EU increased tariffs on Thursday to over 48%. Higher taxes of 19.9% and 17.4% were imposed on Geely and BYD. The average duty for other producers who assisted the EU probe is 20.8%, whilst the additional penalty for non-cooperators is 37.6%.
In November, the obligations become final, however talks may alter the outcome. Member states of the EU may elect to block the additional levies after it was determined that China’s subsidies for the EV industry hurt European automakers.
The EU seems to be playing with a weak hand, which is why some experts are perplexed by its decision to potentially start a tariff war with China. By 2035, the EU has mandated that its automakers sell entirely new electric vehicles (EVs). The quota will be gradually tightened, starting this year at little over 20% and rising to almost 80% by 2030.
The problem lies in the fact that EV sales in Europe have plateaued at roughly two million units this year, and most projections indicate that this number will only rise to seven or eight million units by 2030. Seven million falls very shy of the necessary 80%, at only about 50%. Therefore, slowing the rise of Chinese EV imports raises questions about the EU’s goals.
“The German auto industry has made a last-ditch desperate plea to the EU not to impose these tariffs. After all, the German auto industry exports three times as much as it imports from China by way of cars and four times as much by way of parts. The EU is now inviting the Chinese tit-for-tat response,” according to Sodhi.
The early, unofficial response from the Chinese government appeared to be rather light and was intended to increase duties on high-end gasoline-powered sedans and SUVs, primarily from Germany.
China hoped that the EU will see sense and refrain from starting a trade war. In an email discussion, Sodhi stated, “As with any tariff war, the Chinese will now be forced to react forcefully despite the move not being in their economic interest.”
German automakers, such as Mercedes and BMW, have all emphasized the benefits of free trade, and Germany has backed a diplomatic resolution with China.
China has made suggestions about expanding the scope of potential retaliation to include major European exports of pork, namely from Spain, the Netherlands, Denmark, and France, as well as high-value European goods including French wine, cognac, and agricultural products. Airbus Industrie is situated in Toulouse, France.
The CEO of The Electric Car Scheme, Thom Groot, anticipates a prompt answer from China.
In an email, Groot stated, “I would expect China will react quickly, first with strong words and perhaps later with actions, if behind-the-scenes discussions do not look like they will resolve the situation.”
According to Groot, the high cost of EVs in Europe has hindered demand, which has discouraged investment in production—a situation that the Chinese have exploited.
“What the U.K. and Europe need is stronger incentives to drive demand like (tax incentives) and equalizing taxes on public charging compared to charging at home, while simultaneously investing in the car manufacturing supply chain to catch up to the Chinese manufacturers which are currently ahead of the more established western manufacturers,” Groot stated.
Sales of China’s less expensive EVs would increase, according to GlobalData analyst Sammy Chan, even if the penalty tax policy is kept in place.
Chinese automakers have gained cost benefits by controlling vital components like batteries and integrating vertically. According to Chan, BYD has been selling its products in Europe for up to three times the price they do in China.
According to a recent statement from Rhodium Group, Chinese EVs will remain viable even with tariffs below 50% due to their production efficiency. According to investment bank UBS, that results in a 30% cost advantage for companies like BYD.
“Despite the tariffs, we do expect to see further Chinese brand growth in the Economy segment. Because European brands currently lack Chinese BEV-makers’ efficiencies and lower cost structure they are having to launch entry-level BEVs later to avoid losing money, giving Chinese BEVs in these segments a clearer run,” according to Chan.