Caixin Explains: How the EU’s New Tariff Hikes Will Affect China-Made EVs

The European Union (EU) has provisionally decided to impose additional tariffs of up to 38.1% on battery-electric vehicles imported from China. This decision stems from an ongoing investigation into state subsidies that are allegedly enabling Chinese electric vehicle (EV) manufacturers to sell their products at lower prices than their European competitors, despite differing opinions across Europe on the matter[para. 1].

The new tariff measures, which will be effective from July 4, have been formally communicated to car manufacturers such as BYD Co. Ltd., Geely Automobile Holdings Ltd., and SAIC Motor Corp. Ltd. by the European Commission[para. 2]. The specific tariff rates will depend on each company's level of cooperation with the investigation. SAIC will face the highest tariff increase of 38.1%, in addition to the existing 10%, due to its status as a state-owned company. Geely will see a 20% increment, and BYD will face an additional 17.4%[para. 3].

For EV manufacturers that cooperated but were not part of the three-company sample, a weighted average duty of 21% will apply. Uncooperative companies will incur the full 38.1% tariff. Notably, European brands like Mercedes-Benz, BMW, and Renault, which export EVs assembled in China, will also be subjected to these additional tariffs[para. 5].

In response to this decision, China’s Ministry of Commerce issued a statement accusing the EU of ignoring facts, World Trade Organization (WTO) rules, and strong objections from China, as well as appeals from several EU member states' governments and industries. The ministry vowed to take necessary measures to safeguard the rights and interests of Chinese companies[para. 6].

Tesla Inc., an American EV giant that imports Model 3 sedans from Shanghai to the EU, has requested a lower tariff rate, arguing that it has benefited from less extensive state support compared to Chinese companies[para. 7].

The EU initiated an anti-subsidies investigation into Chinese electric car imports in October, potentially leading to countervailing duties within nine months. This probe began as European automakers were being significantly challenged by cheaper Chinese imports, with the European Commission citing that China-made EVs were generally 20% cheaper than European models[para. 9][para. 10].

As a consequence of the additional 21% duty, it’s anticipated that the number of Chinese EVs exported to the EU will drop by about 30% in the short term, according to Liu Yan, a senior engineer at the China Automotive Technology and Research Center[para. 11]. The Kiel Institute for the World Economy projected a 25% reduction in Chinese EV imports, equating to approximately 125,000 units or nearly $4 billion[para. 12].

The European Union Chamber of Commerce in China emphasized the need for proportionate, transparent, and WTO-consistent tariffs and noted that the anti-subsidies probe is still in its provisional stage, with definitive measures to be confirmed by the end of the year[para. 14].

In response to these measures, Chinese companies are investing in European car assembly to mitigate risk. For example, BYD signed a preliminary agreement to build its first European EV factory in Hungary, while Chery Automobile Co. Ltd. acquired a manufacturing facility in Barcelona[para. 17][para. 18]. SAIC also plans to build its first EV factory in Europe despite voicing concerns about the EU's decision, which it claims contradicts market principles and could harm global auto industry stability[para. 20].

BMW's CEO, Oliver Zipse, criticized the EU’s decision, calling it unfavorable for international competition and warning about a potential cascade of retaliatory tariffs[para. 22][para. 23].

If the increased tariffs fail to significantly impact Chinese exports, the European Commission may consider alternative measures, such as tightening cybersecurity requirements or adjusting subsidy regulations to restrict Chinese EVs further[para. 28].

In summary, while this provisional tariff imposition is seen as the initial tool in the EU’s regulatory approach, further actions may follow to curb the influx of Chinese electric cars into the European market[para. 30].