Just one week after America’s 100 percent tariffs on China EVs kicked in, the European Union has voted to officially approve additional tariffs for electric vehicles imported from China, making it harder for Chinese automakers to compete in the European market.
The tariffs were proposed by the European Commission in June after it concluded that Chinese-made EVs have received significant government subsidies that create an unfair advantage. Electric vehicles made in China—both by Chinese brands and by Western ones like Tesla and BMW—will be subject to varying levels of import duties between 7.8 and 35.3 percent.
Out of 27 member states of the EU, 10 voted yes to the proposed tariff, 5 voted no, and 12 abstained. Germany is the most prominent country to vote against the tariff, having been publicly lobbied by German carmakers like Mercedes, BMW, and Volkswagen to do so. The result represents a small change to the unofficial vote that took place back in July, when 12 countries voted yes and 4 voted no. But the difference is far from enough to reverse the result.
To directly approve or block the suggested tariffs, any side needed to amass support from 15 EU countries that represent more than 65 percent of the European population. That could’ve been met only if larger countries such as Italy, Poland, or the Netherlands had joined the opposition. On Friday, neither side reached the 65 percent threshold, so it’ll be up to the European Commission to uphold its tariff proposal.
In 2023, EVs made in China accounted for 19 percent of the European EV market. The number is still growing fast, potentially reaching 25 percent by the end of this year—and more Chinese brands are poised to join the competition.
By selling decent-quality cars at a more affordable price, these Chinese automakers have become a significant challenger to Europe’s homegrown auto industry, which has been an important economic pillar to the region. In Germany for example, the auto industry accounted for nearly a quarter of total domestic industry revenue in 2022.
The tariffs will take effect starting October 31 and will last five years, likely resulting in a price hike for Chinese-made EVs in Europe and making them less appealing to carbuyers. But it won’t erase their price advantage completely, especially for brands such as BYD. Research by the Rhodium Group suggests that tariffs need to be in the 40 to 50 percent range to properly deter Chinese brands from coming to the European market.
But European tariffs are likely not the end of the story. “In parallel, the EU and China continue to work hard to explore an alternative solution that would have to be fully WTO-compatible, adequate in addressing the injurious subsidization established by the Commission’s investigation, monitorable and enforceable,” says a statement from the European Commission on Friday. If a deal is reached in the future, it could lead the EU to revise or scrap the tariffs.
Different Impacts for Different Brands
In general, the new tariffs are designed to make it harder for Chinese-made EVs to maintain competitive prices in the European market. However, different carmakers are getting different tariffs depending on how much they cooperated with the antisubsidy investigation, and whether they are joint ventures with European companies.
Currently, all imported cars are already subject to a 10 percent tariff. For BYD, the best-selling plug-in EV brand in the world today, an additional 17 percent tariff under the new requirement is unpleasant, but probably bearable. However, an additional 35.3 percent tariff for SAIC (which has a joint venture with General Motors) and other Chinese brands that didn’t cooperate with the investigation is a much bigger problem.
“I think you can envision this playing out pretty well for BYD, actually,” says Ilaria Mazzocco, a senior fellow at the Center for Strategic and International Studies. “And also, they’re going to have less competition from other Chinese automakers.” BYD is known for its ability to control production costs, so it can still sell its cars at a relatively low price. For other Chinese brands, though, the tariffs could mean they now have to set their prices higher and compete head-on with models from Europe.
Chinese automakers are not the only ones being impacted. Tesla, with half of its cars made in the Shanghai Gigafactory in China, will receive the smallest tariff at 7.8 percent after the company requested an adjustment based on the actual subsidies it gets in China. In contrast, Volkswagen and other European brands that produce cars in China may get around 21 percent.
One way for Chinese brands to get around the tariffs is to set up factories in Europe and shift production here, like what Volvo has done for years producing in Sweden even though it’s been acquired by the Chinese company Geely.
Such decisions may well be welcomed by some European countries, since that would in theory contribute significantly to local employment and green economic growth. Indeed, many Chinese companies have announced plans to move part of their supply chain to countries such as Spain, Hungary, and Poland, although Mazzocco warns these announcements should be taken with a grain of salt until factories actually start production.
Alternative Solutions
Yet despite the vote result, the approved tariffs may not be final. On Monday, a European Commission official said that the commission is willing to continue the negotiations with China even after the tariff vote. If they manage to agree on other solutions to the issue of unfair competition—for example, setting up import quotas or a price floor for Chinese EVs—the tariff could be revised.
China has filed a complaint to the World Trade Organization about the EU tariffs, and the WTO could also request the EU to change or withdraw these tariffs if it finds them unacceptable.
“What the commission really wants to do is to tell the members, ‘Look, we need to look serious here. We can negotiate later,’” says Alicia García-Herrero, chief economist for Asia Pacific at French investment bank Natixis. If member states had rejected the commission’s proposed tariffs, it would’ve shown that Europe is divided and powerless facing the influx of Chinese brands. But now that the tariffs have passed, Europe has more leverage in negotiating a better trade deal with China.
Not all of the alternative outcomes would impact Chinese companies the same. For example, the worst situation could be an import quota, says García-Herrero. Turning a profit with the tariffs is challenging, but still possible. “But a quota would reduce the number of exports, so it’s not in China’s interests,” she says.
On the other hand, setting a price floor for the imported EVs alone may not be a bad thing after all. It gives the automakers a higher profit margin and forces them to compete on the basis of better quality and service. “I think Chinese automakers feel pretty confident about their quality,” Mazzocco says. And it can even be good news for the Chinese EV brands that are focusing on the higher-end, luxury car market, like BYD’s sub-brand Yangwang, which is making luxury SUVs that can drive across lakes in emergencies.
No matter which option ends up being picked, it’s probably not going to stop Chinese-made EVs from entering the European market. Just on Monday, Changan, another Chinese carmaker, announced its plans to start selling its EVs in Europe later this year. Dacia Spring, a model that’s produced by the Renault Group’s partner Dongfeng in China, has also maintained a very low price point even after factoring in the tariffs.
Security Threat?
There’s one stark difference between the responses to Chinese EVs in Europe and the US: whether the cars are viewed as a security threat.
In the US, not only is the tariff on Chinese-made EVs a lot more preemptive and punitive—100 percent, hitting brands such as Polestar—the trade discussion is also often tangled with concerns that Chinese-made cars could become security liabilities in the US.
Last week, the Biden administration announced a ban on certain Chinese-made auto software and hardware, which makes it much more difficult for any Chinese company to even consider selling to the US. The scrutiny on this software and hardware mimics the scrutiny on Chinese-made apps and telecoms infrastructure, concerned with the possibility that it could enable the Chinese government to access American data.
When it comes to cars, such security risks are almost entirely theoretical in the US, since there are few Chinese EVs actually sold in the country at the moment. While Europe has more Chinese EVs, it’s still a relatively low risk.
“The market share of Chinese automakers across Europe is still low, and its growth will likely be significantly slowed if the tariffs as proposed are confirmed,” says John Lee, Berlin-based director of East West Futures Consulting. “Furthermore, mandatory cybersecurity certification standards that took effect across the EU in July 2024 for new vehicle registrations have already had a negative impact on sales by Chinese automakers. So the data security issue is still largely a theoretical one.”
Unlike the US government, which has shown a clear stance to decouple the country from China’s EV industry, Europe is much more invested in China’s automakers and the green-energy transition, which makes it much harder to purge Chinese EVs. “But a lot depends on the European response to the recently proposed US prohibition on connected vehicles integrating Chinese hardware and software,” Lee says.
In fact, senior EU officials started echoing the security concern last week right after the US government proposed its ban. That kind of discussion is slowly growing in Brussels, but it’s yet to be influential.
“There’s some interest in exploring these risks because they’re seen as a risk in the US,” says Mazzocco. “But I don’t think this would be popular right now in a lot of member states. And I don’t think you really hear that in policy circles.”
Source : Wired
