Chinese EV tariffs receive less than rousing welcome

The European Commission has announced provisional additional tariffs on three leading Chinese automakers as a result of the months-long EU anti-subsidy investigation which seeks to safeguard European auto manufacturing against an influx of Chinese models whose development it suspects of being unfairly subsidised.

The tariffs specifically mention three firms, BYD, Saic, and Geely, that were sampled in the Commission's investigation. Imported BYD EVs will face another 17.4pc of duty on top of the existing 10pc, with Geely and Saic facing 20pc and 38.1pc levies respectively.

But all EVs made in China (including those made by western firms such as BMW and Tesla) will be subject to some level of additional tariff.

"Other BEV producers in China, which cooperated in the investigation but have not been sampled, would be subject to the following weighted average duty of 21pc," the European Commission says. "All other BEV producers in China which did not cooperate in the investigation would be subject to the following residual duty: 38.1pc."

More individual rates to come?

EV inFocus assumes that any Western firm making EVs in China would likely have offered cooperation, and this would be subject to a 21pc hit. But Tesla "may also receive an individually calculated duty rate at the definitive stage", presumably in an attempt by the US firm to avoid the slightly incongruous situation where it will be paying more to import its EVs into Europe than Chinese rivals like BYD and Geely.

"Any other company producing in China not selected in the final sample that wishes to have its particular situation investigated can ask for an accelerated review, in line with the basic anti-subsidy regulation, just after imposition of definitive measures (i.e. 13 months after initiation). The deadline for concluding such a review is 9 months", the Commission says.

So other firms, be they non-Chinese like BMW or Chinse OEMs, may enter into processes to bring their particular rates lower.

The tariffs will come on top of existing 10pc duties levied on Chinese imports, but are currently 'provisional' in that the EU says "has reached out to Chinese authorities to discuss these findings and explore possible ways to resolve the issues identified in a WTO-compatible manner". The duties will come into force on 4 July, failing such a solution.

The 38.1pc duty placed on Saic might appear to be an attempt to hit the Chinese firm which has thus far made one of the greatest penetrations into the European EV market with its MG brand. In contrast, BYD has made less progress in Europe to-date but has major ambitions, which could have encouraged it to be more co-operative with EU authorities.

Geely's Chinese brands have made little headway thus far. But it does hold controlling stakes in both Volvo Cars — one of the most successful legacy western OEMs in switching to EVs and EV pure paly start-up Polestar, which are headquartered in Sweden and listed on Western stock exchanges, which again may have influenced its appetite to engage.

Saic could belated choose a more co-operative approach, as it now has three days to "provide comments on the accuracy of the duty rate calculations". "If the comments received from the companies concerned following pre-disclosure provide sufficient counter-balancing evidence, the Commission can revise its calculations in accordance with the law and calculate new levels of provisional duties," the Commission says.

Long time coming

The EU has been deliberating tariffs on Chinese EVs for many months, since the European Commission first launched an investigation into subsidies received by Chinese OEMs from the nation's government in September.

The investigation came in response to the threat posed by affordable and technologically advanced EVs from Chinese OEMs that cold undercut traditional manufacturers in the West. Last month, the Biden administration confirmed a 100pc import duty in the US on Chinese EVs.

"The purpose of the provisional countervailing duties would be to remove the substantial unfair competitive advantage of Chinese BEV producers due to the existence of unfair subsidy schemes in China. The duties would therefore aim to ensure that EU and Chinese industries compete on a level playing field. The aim is not to close the EU market to such imports," the Conmission says.

But it maintains that the proposed additional duties are the "result of an EU anti-subsidy investigation which revealed that the entire BEV value chain is heavily subsidised in China, and that imports of Chinese BEVs presented a threat of clearly foreseeable and imminent injury to EU industry".

An April report from research firm Rhodium Group argued that the EU would need up to 50pc import duties on Chinese EVs to protect the competitiveness of the continent's major automotive players, a level close to that Saic and other Chinese uncooperative with the Commision's probe now face.

At time, Rhodium warned that in its expected case of an upper range of 30pc tariff being introduced, "some China-based producers will still be able to generate comfortable profit margins on the cars they export to Europe because of the substantial cost advantages they enjoy".

Several Chinese automakers, most notably BYD, have already unveiled plans to sell their EVs in Europe for up to twice as much as they sell for in their home market, even before the application of import duties. This strategy could allow Chinese firms to recoup some margin gains that they are losing in a fierce price war at home, while still remaining affordable in comparison to European-made EVs.

Backlash

It has been expected that the EU's tariffs would not come close to the scale of the US policy, partly due to the public stance of notable German OEMs against duties, stemming from a fear of reprisals from China against their own operations in the country.

As such, initial reaction from both the continent's auto lobby Acea, as well as the German government, has urged the need for open markets and an industrial strategy which focuses on bringing costs of EV production — particularly critical minerals — down.

"Acea has consistently affirmed that free and fair trade is essential to creating a globally competitive European automotive industry, while healthy competition drives innovation and choice for customers" Acea says in response to the EU proposals.

But while the lobby group's stance can be seen as welcoming the creation of an even playing field by removing the advantages enjoyed by Chinese firms, Acea president Sigrid de Vries denies that tariffs should be the first port of call for the industry's push for global competitiveness.

“What the European automotive sector needs above all else to be globally competitive is a robust industrial strategy for electromobility,” she says, a note echoed by German transport minister Volker Wissing.

"In the EU EVs must become better value for money, through more competition, open markets, and significantly better rules of origin, not through trade wars and market isolation," Wissing says.

The Scholz administration of which Wissing is a member has faced criticism from some foreign policy experts for taking too dovish a line on the threat posed by China. And the influence of BMW, Mercedes and VW executives worried about their firms' positions in the domestic Chinese market coming under threat in any tit-for-tat trade war has been viewed as weakening Berlin's political resolve to take a harder line on China.