Chinese EV margins might weather new EU tariff plan
- July 1, 2024: Vol. 11, Number 7

Chinese EV margins might weather new EU tariff plan

by McAlinden Research Partners

Deliveries of battery-powered cars within China represent about 60 percent of the global total, and the country is also a dominant player in overseas shipments of local new energy vehicle (NEV) brands as well. Europe was the destination for about half of the NEVs China exported last year — a categorization that covers both hybrid and fully-electric vehicles (EVs).

Low prices relative to international competitors have made China’s wide array of EV brands particularly attractive, even in light of a 10 percent EU tariff on China-manufactured vehicles imported into the bloc. However, a new set of tariffs on several popular Chinese electric vehicle brands were recently rolled out by EU officials, targeting BYD, Geely and SAIC. Those vehicle makes will now face additional tariffs of 17.4 percent, 20.0 percent and 38.1 percent, respectively, meant to offset the cost-cutting impacts of heavy state subsidies handed down by Beijing that are considered anti-competitive in European markets.

More general trade restrictions were placed on other automakers producing electric vehicles in China, including European companies with factories or joint ventures there, who now face a tariff of either 21.0 percent or 38.1 percent, depending on whether they cooperated with EU’s investigation. The new set of tariffs are set to apply by July 4, with the anti-subsidy investigation set to continue until Nov. 2, when definitive duties covering a period of years will likely be applied. Further, a decision will be made on whether duties might be collected retroactively from March — when the EU began registering all imports of all Chinese EVs.

Tariffs have been viewed by some as a disastrous prospect for Chinese auto exports, as the country was expected to ship 6.0 million vehicles abroad in 2024, up 22 percent year-over-year versus last year’s 4.91 million units, according to officials from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products. China became the top vehicle exporting nation in the world in 2023, surpassing Japan, and their advances in developing affordable EVs helped to supercharge the appeal of the country’s domestically-made units.

In spite of the increasingly cumbersome tariff load, it is possible that China’s EVs remain competitive. As an example, BYD’s mainline SUV, the Atto 3, sells for €38,000 ($40,663) in Europe, and a 10 percent duty only raises the price to €41,800 ($44,730), still well below the region’s average EV price hovering between €50,000 (53,504) and €60,000 ($64,205). The addition of a further 17.4 percent tax will see the Atto 3 price surging to around $48,400 — a much less competitive price, but still falling short of that average range. Chinese automakers will often sell their EVs in Europe at nearly double the price they retail for on the mainland.

Andrew Sher, research analyst at Carnegie China, estimates that new tariffs will still allow BYD to pull in a profit of €9,397 (roughly $10,200) per Seal U model sold in the EU, more than seven times the profit per unit they earn China.

Further, Chinese EV brands are looking to overcome the impact of trade restrictions by producing a certain amount of their cars within the EU. According to a Rhodium report, Chinese firms plowed the equivalent of $24 billion into the EV ecosystem in Europe in 2022, representing more than half of China’s direct investment into the continent. BYD laid out plans in late December for its first car factory in Europe. The plant will be based in southern Hungary, an EU member state that will serve as the center for its European operations, following the launch of direct sales in that market in October.

Reuters reports that China’s Leapmotor will soon utilize partner Stellantis’s Tychy plant in Poland to build vehicles for European markets. Output of Leapmotor’s T03 EV could start before the end of June. Chery will initiate production of its vehicles during the fourth quarter at a former Nissan facility in Spain with a local partner, and is planning to set up a second, even larger factory, in Europe sometime in the near future. SAIC, owner of the MG brand, also aims to build two Europe plants, according to Reuters.

The impact of the EU’s protectionism in the auto market is unlikely to go just one way. Numerous European automakers also sell their vehicles in China, which could now be subject to retaliatory tariffs from the Chinese government. Opinions among European leaders, in regard to the effectiveness of slamming Chinese auto imports with new taxes, were mixed leading up to the tariff plan.

Chancellor Olaf Scholz of Germany — by far the largest automobile manufacturing country in Europe — was particularly wary of this move, openly warning against restricting automotive trade with China. Earlier in June, Scholz stated, “We do not close our markets to foreign companies, because we do not want that for our companies either.”

Bloomberg reports that German automakers including Mercedes-Benz Group, Volkswagen and BMW would be hit hardest in a trade spat with China as they collectively sold 4.6 million cars there in 2022.

Ironically, Mercedes-Benz CEO Ola Källenius has openly opposed higher tariffs on his Chinese competitors, likely understanding the implications of an auto-focused EU/China trade skirmish, but also believing that Mercedes could outcompete the overseas brands on their home turf, even with lower duties than are in place now. Alas, the China Chamber of Commerce to the EU announced that it had already been “informed by insiders that China may consider increasing temporary tariff rates on imported cars equipped with large-displacement engines,” likely spelling some amount of uncertainty for European automakers that rely on China as their own massive export market.


This article was reported and written by McAlinden Research Partners, and can be assessed here.

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