The European Union (EU) has announced additional tariffs on electric vehicles (EVs) imported from China after months of investigation into what it sees as Beijing’s unfair support for companies that undercut European carmakers. This decision imposes hefty extra tariffs of between 17.4% and 38.1%, on top of the existing 10% duty.
The impact on China’s EV makers will vary depending on the tariff level and each company’s cost structure. Companies facing the highest tariffs may be forced to raise prices or establish factories in Europe. Although Beijing is displeased, analysts suggest that China is unlikely to rush into a full-blown trade war with the EU, its second-biggest trading partner, due to economic pressures at home.
For market leader BYD, which competes with Tesla as the world’s top producer of battery electric vehicles, there’s still potential for growth in Europe despite the additional duty, according to Gregor Sebastian, a senior analyst with the Rhodium Group. BYD faces the lowest additional levy of 17.4%, which could allow it to cut prices to gain market share in Europe.
“BYD is already building a factory in Europe, is likely to still profitably export to the EU even with 17% duties, and can export plug-in hybrids without additional duties,” Sebastian said. The new tariffs target only battery EVs.
Importance of the European Market
Europe is crucial for China’s EV ambitions. In 2021, it became China’s largest EV export market, surpassing Asia, propelling China to the top as the world’s leading car exporter. In 2023, the EU accounted for 38% of China’s EV exports. This significant market share means China cannot easily reroute exports to other countries like Brazil, Turkey, and the US, which have also implemented barriers.
Last month, the United States quadrupled tariffs on EVs from China, from 25% to 100%, to boost American jobs and manufacturing.
“The EU is the only market left that is both wealthy and large enough to absorb a meaningful amount of China’s excess production of EVs,” said Etienne Soula, a research analyst with the Alliance for Securing Democracy at the German Marshall Fund of the United States.
The Chinese government views the EV industry as part of its broader strategy to surpass the US in the global tech race and to counter economic slowdowns while promoting a low-carbon economy. EVs, along with photovoltaics and lithium-ion batteries, are seen as pivotal for China’s economic future.
Challenges for Chinese Automakers
Not all Chinese EV makers are equally affected by the tariffs. State-owned carmaker SAIC faces 38.1% in additional tariffs, which could force it to build a factory in Europe to bypass these duties. Geely, China’s fourth-largest NEV retailer and owner of Volvo, faces 20% in additional duties, which could narrow its profit margins but still allow for profitable exports to the EU.
Tesla, which uses China as a base for global exports, including to Europe, might receive an individually calculated duty rate in the future. Tesla has indicated it may need to raise prices for its Model 3 due to the new tariffs. Sebastian noted that additional duties above 21% could render Tesla’s exports from China to the EU uncompetitive.
Acceleration of Localization Efforts
The EU’s move is expected to hasten efforts by Chinese carmakers to set up factories in the region. BYD announced in December that it would build an EV factory in Hungary, becoming the first major Chinese automaker to produce passenger cars in Europe.
While the tariffs are not favorable for consumers and cities with zero-emission goals, “the establishment of new European-manufactured electric vehicles by Chinese companies would certainly be welcomed,” said Andrew Bergbaum, global co-head of AlixPartners’ automotive & industrial practice.
Limited Retaliation Expected
Ahead of the announcement, Beijing hinted at possible retaliation. However, analysts believe there is a low chance of a serious escalation into a full-blown trade war, given the significant losses both sides would incur. China could impose tariffs on European goods such as luxury cars or airplane parts but has limited room for maneuver due to its economic pressures.
Provisional tariffs are set to be introduced on July 4, unless discussions with Chinese authorities lead to a mutual agreement.