Chinese EV Consumers in EU Will Pay More
The European Commission announced on Oct 29 that countervailing duties would be imposed on imports of Battery Electric Vehicles (BEVs) from China. Twelve months ago, the EU conducted an anti-subsidy investigation that ultimately resulted in new duties taking effect on October 30, 2024. Compared to similar issues, the impact on Chinese-built EVs in the US was more severe: a 100% tariff on Chinese-built EVs imported into the US is imposed early in the year; there were only 12,400 Chinese-built EVs exported into the US in 2023 (less than 1% of Chinese EV exports). China exported 1.2 million electric vehicles during the same period, with 38% of them going to European markets, and 438,000 to 27 countries within the EU.
As part of the new policy, Chinese-built electric vehicles (independent of their makers) are subject to a 10% import duty, and the new regulation differentiates that duty according to the Chinese maker's background and cooperation during the investigation.
BYD: 17%, Geely18.8% and SAIC:35.3% Other cooperating companies: 20.7%; All other non-cooperating companies: 35.3%
Compared to Tesla, which successfully requested an individual examination, only 7.8% additional duties were assessed on its made in China EV exported to the EU. In early October, China submitted a proposal to the commission to impose a minimum selling price of Euro 30,000 (approximately $32,000) on all China-built electric vehicles exported to the EU before the decision was made on the additional tariff amount. Despite this proposal, the EU rejected it as an exchange for not implementing the tariff hike.
Not All Companies Are Equal
SAIC (Shanghai Automotive Industry Corporation), China's largest state-owned automaker with JVs with VW and GM, was placed in the highest category of import duties. In 2023, SAIC shipped 83,000 EVs to Europe, compared with BYD, which bears the brands of MG and Maxus. In Europe, the top tier of tariffs interfered with their market position, as the MG4 was one of the top selling electric vehicles. More than 45% import duty in total vanished SAIC's competitiveness and had an immediate impact on the company's sales and margins in Europe, where SAIC gets 15% of its global revenue from EV sales.
According to analysts, Geely, the company that owns Volvo, will still be able to export to the EU profitably, but its profits will be significantly lower.
A relatively better position among other EV manufacturers in China is BYD, the largest EV maker in the country, with the lowest tariff increase percentage. As a result of Tesla's own market segment and characteristics, only moderate tariff increases occurred.
Betting On the Right Horse
Although the EU began to make efforts in the beginning of the century to develop new automobiles that use greener energy sources as alternatives to fossil fuels, little progress has been made because most automobile manufacturers have been trying to convince authorities that with proper technology improvements over time, internal combustion engines (ICEVs) could be as efficient, emission-free, and other key metrics as electric vehicles. Volkswagen emissions scandals (also referred to as Dieselgate) brought the company under the spotlight in 2015 and, in the following years, the management received charges and fines for fraud and conspiracy. After realizing that ICEV improvements couldn't be relied upon to achieve the ambitious EU Green-plan of making all new cars and vans zero-emission by 2035, automakers in Europe switched their focus to electric vehicles. However, they have lost their competitiveness against rivals in other parts of the world.
New energy vehicles were recognized by the Chinese government as early as 2009, and the government injected more than $230 billion to support the industry. The huge investment paid back with a great return to make the country become the largest EV production and technology base in the world; not only car assembly, but also critical parts and technology associated with the product: more than 60% of new electric car sales in 2023 will be produced in China. Despite China's textbook success in the EV industry, it faced accusations from others that it over subsidized the industry directly and indirectly. Among the biggest state-owned car makers, SAIC has the highest tariffs imposed; this reflects this criticism in some ways. During the last few years, many new entrants have flooded into the EV market hoping to get a piece of the pie, increasing competition and leading to price wars. In order to survive in the battlefield, players in the top few positions must sacrifice their margins. The top players, like BYD, Geely & SCIA, must export as many products as possible to compensate for this because they can get a premium from the overseas market. A higher acquisition cost for overseas customers would definitely adversely affect the profitability of these makers. By September 2023, Chinese-built EVs will account for 25% of the EV market in the EU, up from 3.9% in 2020. As a result of the success, the EU authorities became alarmed.
Tug of War Game Is Still On
There was a report that Chinese authorities advised car makers to put their big investment plans (building new facilities and forming joint ventures with EU makers) on hold in the countries that supported the tariff proposal. Additionally, China has conducted anti-subsidization and anti-dumping investigations on EU origin products, including brandy, pork, and dairy products. Although Chinese authorities maintained that they were independent from the EV tariff dispute, commentators saw these as a gesture or warning to some stakeholders and put pressure on those who supported higher tariffs.
As each EU state-member has its own interests and considerations when it comes to trade relations with China, some state-members are reluctant to have direct confrontation with China over EV issues, as reflected by the vote (only 10 yea, 5 nay, and 12 abstained). As a result of the "Divided & Conquer" strategy, China could achieve a breakthrough in reducing or eliminating tariffs. At the very least, getting a much more favorable position. Likewise, the EU Commission added "The Commission is also open to negotiating price undertakings with individual exporters in accordance with EU and WTO rules" to avoid completely closing off the market. As a result, the show is still in progress and not yet finalized.
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