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Home » European automakers brace for reaction to China EV tariffs
China

European automakers brace for reaction to China EV tariffs

i2wtcBy i2wtcJuly 5, 2024No Comments4 Mins Read
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Chinese cargo containers on the map of Europe. Chinese products import concept. 3D rendering … [+] figure.

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The European Union has begun imposing provisional tariff hikes on Chinese-made electric vehicles, but European automakers are unsure when expected retaliation will come into effect or how severe it will be.

The EU raised tariffs to almost 48% on Thursday, with SAIC’s MG facing a 37.6% tariff on top of the existing 10%. Geely and BYD face increases of 19.9% ​​and 17.4% respectively. Other manufacturers that cooperated with the EU investigation face an average tariff of 20.8%, while non-cooperating companies face an additional 37.6%.

The tariffs will be finalized in November and could change depending on negotiations. EU member states could block tariffs imposed because they believe Chinese subsidies for the electric vehicle industry are harming European automakers.

The EU’s decision to potentially spark a tariff war with China has puzzled some experts, as it appears to be putting the bloc in a weaker position. The EU mandates that automakers in member states sell only electric vehicles in new cars by 2035, with quotas tightening from just over 20% this year and rising sharply to about 80% by 2030.

The problem is that EV sales in Europe are set to plateau at about 2 million this year, and most forecasts put the number at just 7 to 8 million by 2030. Seven million is only about 50 percent of the total, well short of the 80 percent needed, so curbing the growth of EV imports from China calls into question the EU’s goals.

Manmohan Sodhi, a professor at the UK’s Bayes Business School, says Germany in particular is at risk of retaliation from China.

“The German auto industry has made a last desperate plea to the EU not to impose these tariffs. After all, the German auto industry exports three times as many cars and four times as many parts as it imports from China. The EU is now inviting a retaliatory response from China,” Sodhi said.

The Chinese government’s initial informal response was relatively mild, appearing to be aimed at raising tariffs mainly on expensive German-made gasoline-powered sedans and SUVs.

China European Union trade

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“China was hoping the EU would take the hint and not launch a tariff war. As with any tariff war, China will be forced to respond strongly even though it is not in its economic interest,” Sodhi said in an email exchange.

German manufacturers such as Mercedes and BMW have all pointed to the benefits of free trade, and Germany supports a negotiated settlement with China.

China has signalled it may widen the scope of its retaliatory measures to include major European revenue sources such as French wine, cognac, agricultural products, aircraft made by Toulouse-based Airbus Industrie SA and pork exports led by Spain, the Netherlands, Denmark and France.

Tom Groot, CEO of the Electric Car Scheme, said he hopes to see a swift response from China.

“I expect China to respond swiftly with strong words at first, and then take action if behind-the-scenes talks do not seem to resolve the situation,” Groot said in an email.

Groot said demand for EVs in Europe was being held back by high prices, which was discouraging investment in production, and China was seizing the opportunity.

“What the UK and Europe need is strong incentives to stimulate demand, such as tax breaks and tax on public charging that is on par with home charging, whilst at the same time investing in the car manufacturing supply chain to catch up with Chinese manufacturers who are currently ahead of more established Western manufacturers,” Groot said.

Meanwhile, GlobalData analyst Sammy Chan said sales of cheap electric vehicles in China would grow even if the tariffs remain in place.

Chinese automakers have developed cost advantages through vertical integration and control of key components such as batteries, and BYD is sometimes selling its products in Europe for double or even triple the price they charge in China, Mr. Zhang said.

Rhodium Group recently said that even if tariffs were to fall below 50%, Chinese EVs would still benefit because of their more efficient manufacturing, which investment bank UBS said would give manufacturers such as BYD a 30% cost advantage.

“Despite the tariffs, we expect Chinese brands to grow further in the economy segments. European brands currently lack the efficiency and low-cost structure of Chinese BEV makers and are forced to delay the launch of entry-level BEVs to avoid losses, giving Chinese BEVs an advantage in these segments,” Chan said.



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