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Home » EU EV tariffs hit China hard, but BYD’s growth won’t stop
China

EU EV tariffs hit China hard, but BYD’s growth won’t stop

i2wtcBy i2wtcJune 13, 2024No Comments6 Mins Read
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After a months-long investigation, the European Union announced it would impose additional tariffs on electric vehicles (EVs) imported from China, alleging that the Chinese government is unfairly supporting companies that undercut European automakers.

The decision is a blow to the Chinese government and its electric vehicle makers, who have lobbied strongly against the tax, with most companies facing steep tariffs of between 17.4% and 38.1% on top of the 10% tariffs already imposed by the EU.

The impact on Chinese EV makers will vary depending on the level of tariffs and their respective cost structures, and those hit hardest may be forced to raise prices or build factories in Europe.

Although Beijing is clearly unhappy, analysts say it has no desire to enter into a full-scale trade war with its second-largest trading partner, due in part to economic pressures at home.

Even with the tariffs, BYD, the market leader that competes with Tesla as the world’s largest maker of battery electric vehicles, still has room to grow in Europe, according to Gregor Sebastian, senior analyst at the Rhodium Group.

He said BYD could be a relative “winner” if tariffs were raised to the lowest level of 17.4%, which could allow the company to further lower its already competitive prices and gain market share in Europe.

“BYD has already built factories in Europe and looks set to be able to export profitably to the EU even with the 17% tariffs, and will also be able to export plug-in hybrids without additional tariffs,” Sebastian said. The new tariffs only apply to battery electric vehicles.

rhodium The company said in April that BYD’s profits in Europe were 45% higher than in China and that the market remained very attractive even after the new tariffs were introduced.

Europe is key to Beijing’s EV ambitions: In 2021, Europe overtook Asia as China’s largest EV export market, propelling China into the top spot as the world’s top auto exporter.

“One of the key issues for China is that the EU will account for 38% of China’s EV exports in 2023,” Sebastian said. “Potential alternatives such as Brazil, Turkey and the U.S. have also stopped exports, so China will not be able to redirect its exports to other countries.”

Last month, the United States quadrupled tariffs on Chinese electric vehicles, from 25% to 100%, in an effort to boost American jobs and manufacturing.

“The EU is the only market rich and large enough to absorb a significant amount of China’s EV excess production,” said Etienne Seurat, a research analyst at the German Marshall Fund’s Alliance for Securing Democracy.

The Chinese government has big dreams for its electric vehicle industry, part of a broader strategy to overtake the United States in the global technology race.

The government is also trying to counter a real estate-driven economic slowdown and promote a low-carbon economy, and sees EVs as one of the “new big three” growth engines along with solar power and lithium-ion batteries, which it sees as playing a pivotal role in shaping the country’s economic landscape.

In February, nine government agencies, including the Ministry of Commerce and the central bank, pledged to help Chinese electric vehicle makers speed up their global expansion.

In contrast to BYD, state-owned automaker SAIC is facing 38.1% tariffs and is in a “dire” situation, Sebastian said.

The company’s EV sales in 2023 and early 2024 will account for 15% of its total EU sales. The Shanghai-based automaker, which was China’s second-largest seller of battery electric vehicles, plug-in hybrids and fuel cell vehicles (NEVs) last year, will need to build factories in Europe to avoid those tariffs.

Geely, China’s fourth-largest NEV retailer and owner of Volvo, faces 20% additional tariffs and penalties likely to “It’s a mix of good and bad,” said Mr. Sebastian, whose analysis showed that Geely could still export to the EU profitably, but that profit margins would be significantly lower.

For China-based Tesla (TSLA), The situation is difficult as the country is also an export base to the world, including Europe.

The European Commission said on Wednesday that electric vehicle giant Tesla could receive individually calculated tariff rates in future, at the automaker’s request.

Tesla said in a message posted on its website in several European countries on Thursday that it expects it will have to increase prices of its Model 3 cars starting July 1 because of the new tariffs.

Sebastian said tariffs of more than 21% would likely make Tesla’s exports from China to the EU less competitive.

The EU’s move is likely to accelerate efforts by Chinese automakers to build factories in the region.

“This announcement is a sign of China’s [EV companies] “Suppliers are manufacturing in Europe and are already starting to do so,” said Andrew Bergbaum, global co-head of automotive and industrial at AlixPartners.

BYD announced in December that it would build an EV factory in Hungary, becoming the first major Chinese automaker to do so. Manufacture of passenger cars in Europe.

While the tariffs are not good news for consumers or cities seeking zero-emissions vehicles, “the introduction of new European-made electric vehicles by Chinese companies will certainly be welcomed,” Bergbaum said.

But it also means increased competition in sectors that are already overcapacity, and major disruption as the existing manufacturing base “rebalances its resources”, it added.

Meanwhile, analysts at UBS predicted on Wednesday that the number of Chinese manufacturers entering the EU will become “more concentrated.”

As Chinese industry leaders forge ahead, smaller players may become discouraged and give up, but they also expect Chinese companies to accelerate setting up assembly plants in the EU, a move that will be welcomed by EU member states such as Hungary, Italy and Spain.

Prior to the announcement, Beijing He hinted at possible retaliation.

China’s commerce ministry and foreign ministry reiterated on Wednesday that they would take “all necessary measures” to safeguard their interests.

But analysts say the likelihood of a serious escalation is low.

“The situation is unlikely to escalate into a full-blown trade war. Both sides have too much to lose,” Sebastian said.

Sula said China could retaliate by imposing tariffs on some European products, including luxury cars, fine brandy and aircraft parts.

But China’s room for maneuver in dealing with the EU is “limited” given the economic pressure it is already under.

“There’s still a chance that EU countries skeptical of the investigation could work together to reduce the final level of tariffs,” he said. “In this situation, China may want to wait before going all-in to avoid member states becoming too hardline.”

The tariffs are currently temporary but are due to be implemented on July 4th unless an agreement is reached in talks with Chinese authorities.



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