In Depth: EU Tariff Roadblock Has Chinese EV-Makers Preparing to Swerve

The global shift towards electrification propelled Chinese electric vehicle (EV) makers into global expansion, but they now face challenges in Europe as the European Commission has announced the imposition of extra tariffs of up to 38.1% on battery-electric vehicles shipped from China, effective by July 4, as part of the EU’s anti-subsidy investigation into Chinese EVs [para. 1][para. 2]. During discussions with China's Commerce Minister Wang Wentao and European Commission Executive Vice President Valdis Dombrovskis, it was agreed to start consultations on the issue.

While sales of Chinese-made EVs might decline in Europe in the short term, analysts believe the tariffs will push Chinese automakers to relocate or open factories in Europe [para. 4][para. 6]. Major Chinese EV manufacturers like SAIC Motor Corp. Ltd., Geely Automobile Holdings Ltd., and BYD Co. Ltd. will face varying tariff rates, with SAIC hit hardest at 38.1% [para. 7]. Europe is a significant export market for Chinese EVs, with China exporting 482,000 pure electric passenger vehicles to the EU in 2023, representing 45.1% of its total EV exports [para. 8]. The new tariffs could lead to a 30% fall in the number of electric cars exported from China to the EU in the short term, according to the China Automotive Technology and Research Center [para. 9].

The anti-subsidy probe launched by the EU in October has already resulted in a decline in the number of pure electric passenger cars exported from China to Europe, down 8% year-on-year for the first four months of 2024 [para. 11]. The tariffs could hit sales of China-made EVs further, particularly for SAIC, whose sales might "fall off a cliff," according to an executive [para. 14].

Analysts at UBS AG predict that smaller Chinese firms might face setbacks, while larger players could accelerate localized production and assembly in Europe [para. 15]. Although additional tariffs could delay Chinese automakers' plans, they won't prevent their entry into the European market, said Felipe Munoz from JATO Dynamics [para. 16]. Significant price disparities favor Chinese brands, as evidenced by SAIC’s MG4, which is priced much lower than similar European models [para. 17][para. 18].

While negotiations over the tariffs could result in only minor adjustments rather than their elimination, Chinese auto exporters might consider a price undertaking mechanism to avoid anti-dumping duties, as suggested by Dai Menghao of King & Wood Mallesons [para. 22]. A potential retaliation from China with higher import tariffs on gasoline-powered cars could impact German exports severely [para. 23].

The EU's push for more Chinese automakers to localize production seems to be effective, with nearly 85% of top Chinese auto suppliers moving overseas, particularly focusing on Europe [para. 24]. Despite the hurdles, Chinese EV manufacturers are keen on establishing a presence in Europe, with examples like BYD's land purchase in Hungary for a future factory and Chery Automobile’s acquisition of a manufacturing facility in Barcelona [para. 28][para. 30].

SAIC has also revealed plans to build its first EV factory in Europe, possibly in Turkey, while Geely, the owner of Volvo, has already made substantial investments in Sweden [para. 31][para. 32]. However, not all will capitalize on this; for instance, Great Wall Motor Co Ltd. plans to close its European headquarters in Munich [para. 36].

In summary, while the EU tariffs on Chinese EVs present significant challenges, they also drive the localization of production in Europe for many Chinese automakers. Large manufacturers are expected to adapt and continue their European strategies, while smaller firms might struggle more with these adjustments.