FRANKFURT, Germany (AP) — The European Union on Wednesday increased tariffs, or import taxes, on Chinese-made electric vehicles, making EVs the latest flashpoint in a broader trade dispute over Chinese government subsidies and a surge in exports of green technology from the Asian nation to the 27-nation bloc.
Here are some basic facts about the EU’s planned tariffs:
What has the European Union done?
The European Commission, the EU’s executive arm, said preliminary findings from an ongoing investigation into Chinese EV subsidies revealed that China’s battery electric vehicle “value chain” benefits from “unfair subsidies” to the detriment of EU rivals. The Commission plans to impose provisional tariffs of up to 38.1% on electric cars shipped from China. This is on top of a 10% tariff on all imported EVs.
The Commission targeted China’s three largest electric vehicle makers in Europe, announcing additional tariffs of 17.4% on BYD electric vehicles, 20% on Geely electric vehicles and 38.1% on vehicles exported by state-owned SAIC.
Geely owns a number of popular brands including Polestar, British sports car maker Lotus and Sweden’s Volvo, while SAIC owns Britain’s MG, one of Europe’s best-selling EV brands.
Other Chinese EV makers will face tariffs of at least 21%.
The committee said it was in contact with Chinese authorities “to explore possible ways to resolve the issue,” but that if the talks did not result in an effective solution, the tariffs would come into effect on July 4.
Why did the Commission take action?
The value of electric vehicles imported into Europe surged to $11.5 billion last year, from $1.6 billion in 2020, according to research firm Rhodium Group. Most of the imports came from Western automakers such as Tesla and BMW that have factories in China.
But EU officials complain that domestic Chinese car makers, thanks to heavy subsidies from the Beijing government, are able to undercut European brands in prices and grab market share.
EU officials are concerned that unfairly subsidized imports could hurt European manufacturers and the continent’s green technology industry. European countries also subsidize electric cars. The issue in the trade dispute is whether the subsidies are fair and available to all automakers, or whether they distort the market in favor of one side.
The proposed tariffs are intended to level the playing field by estimating the extent of excessive or unfair subsidies to which Chinese automakers are entitled. The committee did not specifically name any Western auto brands but said Tesla could be subject to a “case-by-case calculated” tax rate if the tariffs are formally imposed.
How do the EU tariffs compare to the tariffs announced by the US?
The Biden administration would raise tariffs on Chinese-made electric vehicles to 100% from the current 25%. Although the United States currently imports very few Chinese cars, the administration, like the European Commission, is concerned that subsidies will hurt domestic companies and cost jobs.
U.S. tariffs will block virtually all Chinese-made EV imports. By contrast, the European Union needs affordable electric vehicles from abroad to meet its goal of cutting greenhouse gas emissions by 55% by 2030.
Just how cheap are Chinese-made EVs?
Chinese automakers have learned how to make electric cars cheaply amid fierce price competition in the world’s largest auto market. BYD’s Seal-U Comfort model sells for the equivalent of 21,769 euros ($23,370) in China but the equivalent of 41,990 euros ($45,078) in Europe, according to data from Rhodium Group. The base model of BYD’s Seagull compact car, due in Europe next year, sells for about $10,000 in China.
As long as the competitive business environment is fair, cheaper Chinese cars will benefit consumers and encourage European automakers to lower prices and improve their products, said Niklas Poitier, a trade expert at Bruegel, a Brussels think tank. “Chinese cars are very cost-competitive, which is increasing pressure on other manufacturers that have been holding back until now,” he said.
What Europe is opposed to is unfair access to subsidies. “An EU green policy that leads to the decline of domestic manufacturers through unfair competition is politically unsustainable,” Poitier said.
How is China supporting its electric vehicle industry?
State-owned enterprises play a leading role in China’s “market socialist” economy, and the government also guides and supports private companies to achieve Beijing’s economic development goals.
For EVs, this could include government vehicle orders, low-interest loans from state-owned banks, cheap land for factories from local governments, tax incentives, and subsidies for raw materials and parts from state-owned enterprises.
The various forms of financial support complicate the EU’s case because it is difficult to collect data on some practices. The EU said it chose BYD, Geely and SAIC as a sample to calculate the tariffs. Other Chinese manufacturers that cooperated with the investigation but were not included in the sample will be hit with an additional 21 percent tariff, while those that did not cooperate will be hit with a 38.1 percent rate, the EU Commission said.
What does this mean for European drivers and car manufacturers?
Chinese cars are likely to be more expensive, reducing pressure on European automakers to keep prices down, but Chinese companies can make cars so cheaply that they could still sell them at a profit even with tariffs as high as 30%.
European automakers building electric cars in China, where they have some government support but not as much as their Chinese competitors, may become collateral damage.
Five of BYD’s six models would be profitable in Europe even with a 30% tariff, according to calculations by the Rhodium Group, while the Chinese-made Tesla Model 3 would be sold at a loss.
Tariffs of 15 to 30 percent “could devastate the business models of foreign companies such as BMW and Tesla that use China as a base for exports to Europe,” the Rhodium Group said in a report.
How will China respond?
China is almost certain to retaliate and pressure European officials to negotiate. The China-EU Chamber of Commerce has warned that Beijing could raise tariffs on cars with engines larger than 2.5 liters, a move that could affect German luxury car makers such as Volkswagen’s Porsche.
After the European Commission announced its plans, the Chinese government responded strongly. The Commerce Department said the tariff hikes were “a blatant act of protectionism that creates and intensifies trade frictions and ‘undermines fair competition’ in the name of ‘protecting fair competition.'” It called on the EU to “immediately correct its misconduct” and said China would “resolutely take all necessary measures” but did not provide details.
But analysts at research firm Sanford C. Bernstein said the impact may not be as large as feared.
Mercedes-Benz, BMW and Volkswagen currently build most of the cars they sell in China in factories there, and just 2% of Volkswagen’s China sales are imported, which would be affected by the tariffs, compared with 15% for BMW and 19% for Mercedes-Benz.
European cars at risk of being hit by Chinese tariffs tend to be high-margin luxury models such as the Mercedes S-Class and BMW’s X6 and X7. But these cars target wealthier customers, who tend to pay higher prices “as long as their purchasing behavior is not perceived as unpatriotic,” the Bernstein analysts said.
In the longer term, Chinese automakers could avoid tariffs by building cars in Europe: BYD is building a factory in Hungary, while Chery has a joint venture making cars in the Spanish region of Catalonia.
