Last year China became the world’s largest car exporter by volume but putting a dampener on the party has been the EC’s probe into Chinese EV subsidies which was launched last September. Finally yesterday (June 12) the European Commission (EC) concluded that battery electric vehicles (BEVs) and their supply chains in China benefit from unfair subsidies. Imports of Chinese EVs into the EU were already subject to 10% tariffs but unless a resolution can be found with Chinese authorities new tariffs of between 17.4% and 38.1% will be added from July 4.
It would be easy to conclude that SAIC is the biggest loser because it is subject to the biggest tariff of 38.1% and is the only producer to attract a tariff of over 21%. However, while SAIC does indeed stand to be a big loser they are not the only company and many of the knock-on effects from the tariffs might be quite surprising.
Between 2020 and 2023 there has been a huge increase in EV imports from China into the EU, up from 57,000 to around 437,000 last year according to the US-based Peterson Institute for International Economics. However, much of the increase has been via stealth with many of the cars imported not readily identifiable as Chinese. Since 2021 and into the first four months of this year the penetration rate of Chinese made BEVs has stagnated at around 20% according to data from Schmidt Automotive Research. The only thing that has changed over that time is the mix of Chinese versus foreign branded cars made in China with Chinese brands increasing over that time to around half the total (10%) up from around 4%. A chart by Merics albeit up to March 2022 showed that in fact only 2% of Chinese EV imports into the EU carried a Chinese brand name with 35% being Chinese-owned European brands such as MG and Polestar. That chart showed that nearly half (49%) of imports were accounted for by Tesla, although it would seem that this proportion has since dropped.
And Tesla may still be one of the biggest losers from the EU tariffs. Although the Model Y is now produced at the German factory all Model 3 cars are imported into Europe from China. Last year Tesla produced 947,000 cars at its Shanghai factory with around 600,000 being delivered to the Chinese market and the rest exported. Under the EU tariffs Tesla will be subject to a 21% tariff on imports from China and Tesla has already indicated that it is likely to raise prices in the EU from July 1 to take into account the tariffs, but has yet to say the actual increase. Last year the Model 3 was the second best-selling BEV in the EU, the Model Y took the top spot, and sales were 101,313 units. As we reported Tesla has requested an individual examination to set the tariff, no doubt in the hopes of reducing the level from the current 21%.
Coming in at number 6 on the top 10 best-selling BEVs in the EU last year was the MG4 with sales of 72,421. It is unclear exactly how many EVs SAIC sold in the EU last year although the company did sell a total of over 200,000 cars (including ICE) in Europe. SAIC issued a letter on June 13 stating its displeasure with the ruling and reiterating its commitment to the principles of free trade and fair competition. SAIC says that it is planning to start production in the EU, ironically SAIC did previously do CKD assembly at the Longbridge plant in the UK up until 2016. The EU hit SAIC with the highest tariff of 38.1% as it concluded that as a state-owned enterprise it was privy to some of the highest subsidies. Last month we reported that SAIC together with CATL, BYD, FAW, Geely, and WeLion were allegedly recipients of a 6 billion yuan (827 million USD) subsidy for solid-state battery R&D.
The tenth best-selling BEV last year in the EU, the Dacia Spring, is also made in China. It is typical of the many cars that are not obviously Chinese that are now sold in the EU and include cars from brands such as BMW, Volvo and Polestar.
European production
Early indications are that foreign-owned OEMs are abandoning China as a production base from which to export EVs. Earlier this year Autocar reported that production of the Dacia Spring might relocate to Europe due to the changing environment. Currently, the car is made by Dongfeng with whom Renault previously had a joint venture.
The highest profile repatriation though might be the BMW iX3. Production of the existing generation began in 2020. At the time BMW had a choice to produce it at any of three plants: Shenyang in China, Spartanburg in the US, or Pretoria in South Africa. Given the way the EV market was developing in China, it made perfect sense to concentrate production of the electrified version of the X3 at the Chinese plant. However, the next generation iX3 will initially be produced at BMW’s new factory in Hungary before later also being produced in China. The Hungary plant will obviously handle EU and US-destined cars and may well mean that Chinese production is once again relegated to China only.
Only three Chinese producers, SAIC, Geely and BYD attracted sampled tariffs with the remainder being hit with a fixed 21%. Geely who control brands including Volvo, Polestar, and Zeekr is subject to a 20% rate. According to Schmidt Automotive Research the Volvo EX30 was one of the biggest contributors to exports to the EU from China in April but this model will switch production to Ghent, Belgium in 2025.
Even Chinese producers are looking at European production which would certainly avoid the tariff issue. BYD, which has attracted a 17.4% tariff, has plans to build a factory in Hungary with a 200,000 a year capacity. Chery has picked Barcelona for its factory and Leapmotor models will be produced at the Stellantis plant in Poland. Meanwhile, Great Wall is currently actively choosing a location from a shortlist and as mentioned earlier SAIC is also considering production.
Tesla may also be pushed into producing the Model 3 in Europe to get around the tariff issue if it is unable to work out a deal with the EU.
Business as usual
AFP reported that Germany’s Kiel Institute for the World Economy estimated that a 20% tariff would result in 125,000 less Chinese electric cars to Europe. We are not so readily convinced and think that although there will be some shift in production to the EU over the next few years neither Chinese companies nor EU producers will be put off from using China as an export base to the EU en masse.
Currently, the Volkswagen Group doesn’t seem to be changing from its plan to export the Cupra Tavascan from China. Equally, there is no news that BMW’s joint venture with Great Wall producing electric Mini models to export will be affected.
Furthermore, as we reported previously Chinese producers are currently making much larger profits on the cars they sell in the EU than the ones sold in China, partly due to the extreme competition in China driving down prices. If the Rhodium Group is correct BYD can easily swallow the 17.4% tariff and still make more profit than on a sale in China. It should also be noted that BYD sales in Europe are still tiny with only 9,970 registrations in the EU during the first four months of 2024.
Another factor that many don’t seem to have talked about is that many of the figures people are using for the European market include the UK which is no longer part of the EU and so is not subject to the tariffs. The UK in 2022 became one of top importers of Chinese cars, including EVs partly thanks to the connection to the Chinese car industry through brands such as MG and Lotus.
Sources: SAIC, Rhodium Group, Fast Technology,
Norway, Iceland and Swiss will also not be affected by the tariffs, since they are not members of EU.
Correct Hassan. We are also assosiated with EU, so we have the same COC sertification. But I believe that direct export from i.e. Norway will not be enough to avoid the tax. But after 1 day of free registration in Norway, it is a “second hand” car, and should not be a problem to avoid the EU-taxes. We have no tax or VAT on electric cars in Norway. And will never have.
BTW.,the EU warranty also follow the exported cars all over EU.
I think all the automakers who have not been significantly marking up vehicles already will have difficulties. EU prices also include ~20% VAT, slightly higher or lower depending on the country. Including the existing 10% tariff, that means that there needs to be a ~30% markup to cover current taxes and tariffs on the Chinese market price. Not to mention shipping, certification and logistics costs. Several automakers currently have little to no cushion. 21-38% in additional tariff (~51-79% total VAT and Tariff) will hit them hard.
Many questioned why BYD had such a high markup in Europe, as it undoubtedly cost them sales volume, but it makes more sense now. They should be able to absorb the additional 17.4% and still be profitable.
However, hopefully these tariffs will be scaled back or eliminated, as they increase cost, limit choices and ultimately slow EV adoption.
Sorry, That should be ~51-68% Total VAT and Tariff.
All car have VAT in EU, not only the Chinese and it is calculated from the price you pay to the dealer. Sweden and Denmark has 25% VAT – Germany has only 19% VAT.
The point is that when comparing the price in China with the EU price, you have to factor in both the tarrif and VAT that are included in the EU price to have a valid comparison. Not to mention shipping and logistics costs. BYD marks their cars up enough to cover the tarrifs and VAT. Tesla does not mark up the price enough to cover the taxes/tariffs that are included in the EU price. Several other western brands also do not mark up enough. They will need to increase prices (as Tesla has indicated for the 3). If they sell cars imported from China at a loss (even though many EV’s are sold at a loss), they could be accused of dumping.
Allmost correct. But Norway, that can export car’s to EU, don’t have any tax (EU have already 10% on most Chinese goods), and no VAT on cars that cost less than 500 NOK. But to be able to export them, they will probably have to 2. hand – in other words, 1 day old. Probaly. But the VAT in EU coun tries must be paid on both new and used cars. UK cars are not suitable for Europe, with their RHD.
All EV cars are sold with loss; all European, all American and all Chinese. Except Tesla, BYD and Geely.