New EU Tariffs Might Bring Chinese Auto Production to Europe

BRUSSELS – European Union tariffs of up to 38.1% on China-built BEVs effective July 5 likely will not stall Chinese automakers’ advancement into Europe’s markets but could steer them toward producing or assembling cars in the bloc, say auto industry experts.

The EU’s executive body, the European Commission, unveiled the provisional countervailing duties on Chinese-built cars June 12 after an investigation launched in October confirmed the automakers were receiving unfair state subsidies from the Chinese government.

“The whole BEV supply chain is subsidized” from raw materials through transport to EU harbors, a senior EU commission official told reporters at a June 12 briefing on the case. The official said subsidies were both general, such as tax breaks and green financing, and case-specific, such as special funding for lithium suppliers and providing batteries below market price.

There also was “evidence of significant price suppression,” meaning the EU industry was unable to increase prices to cover costs and “jeopardized” Europe’s ICE to BEV transition.

The EU tariffs revealed in “pre-disclosure” are provisional, only becoming definitive in November if talks with the Chinese government fail to result in a deal. The tariffs, which come on top of an existing 10% standard import duty, start at 17.4% for BYD and 20% for Geely, two of three Chinese BEV makers “sampled” as market representatives for the investigation.

Cooperative companies not selected for sampling get 21%, while uncooperative firms, notably the third-sampled SAIC, which makes the traditional British marque MG (pictured, below), face 38.1%. Tesla, which sold 28% of Chinese-built vehicles in the EU last year, is the only automaker that requested an individually calculated review of its 21% duty rate, with any amendment occurring should the tariff become permanent in November. Other carmakers seeking such customized tariffs can request an accelerated review once duties are definitive.

China has called the decision blatant protectionism, lacking a factual and legal basis and likely violating World Trade Organization rules. The Chinese Chamber of Commerce to the EU flagged its recent survey, which found even a 10% additional levy “would already carry significant implications for most Chinese car manufacturers, resulting in a substantial negative impact on their exports to Europe.” Of course, that is the point of a tarrif.

The chamber dubbed the Commission’s investigation a “witch hunt,” which “will pose a serious market barrier,” it added. The statement said a Chinese “localization strategy” had helped Europe establish a BEV supply chain ecosystem and underlined: “China's electric-vehicles enterprises continue to regard Europe as an important strategic market and remain committed to investing in it.”

Unlike the chamber, however, auto analyst Matthias Schmidt, founder of Berlin-based Schmidt Automotive Research, tells WardsAuto of the new duties: “We don’t expect it to act as brake, because Chinese manufacturers are operating on such a big profit margin at present that they can absorb it in their margins without raising prices.”

Schmidt argues the Commission has adopted “the right tactic” in setting tariffs at this level, “because it appears that they’re not too tough…they’re about a level playing field and fair competition, not destroying the competition.” Schmidt compares the tariffs with the 102.5% duties the U.S. will apply on Chinese-made cars from August, arguing: “That’s just outright protectionism.”

While the tariffs could incentivize some Chinese brands to themselves produce in Europe through wholly owned plants, joining both BYD with its planned factory in Hungary and Chery’s joint venture in Spain, Schmidt argues few would set up their own plants. Rather, they will probably choose a “different route into Europe” that avoids tariffs, using contract manufacturers such as Finland’s Valmet or Austria’s Magna Steyr to produce or assemble vehicles.

“And for a good reason – Chinese manufacturers haven’t got the volumes to produce in Europe,” apart from BYD or SAIC, Schmidt says, citing the “rule of thumb” that automakers need to sell 100,000 units annually to make having their own production site worthwhile.  

With a 78.7% stake in Volvo Cars, Geely has volumes it can leverage in Europe, Schmidt notes, for instance, producing Geely brands at Volvo’s sites in Belgium and Sweden. “Some Geely cars use a common platform, so it would be very easy for other group models to be produced in Europe on the same platform,” he says.

A March 27 analysis by nonprofit Transport & Environment (T&E) shows 19.5% of BEVs sold in Europe in 2023 were made in China and this is expected to reach 25% this year. T&E forecast Chinese OEMs reaching 11% of the European EV market in 2024 and 20% in 2027, based on growth in the past two years. BYD alone is targeting a 5% market share by 2025.

“Tariffs will force carmakers to localize EV production in Europe, and that’s a good thing because we want these jobs and skills,” says Julia Poliscanova, senior director for vehicles and e-mobility supply chains at T&E. 

Also likely to nudge Chinese firms to build more vehicles in Europe is a French “ecobonus” program introduced January for new low-emissions, electric or hybrid vehicle purchases since January 2023, offering consumer grants of up to €7,000 ($7,485), that Italy is considering emulating. https://www.service-public.fr/particuliers/actualites/A14391?lang=en

Since January, the scheme has included tougher conditions limiting payouts to vehicles with a production carbon footprint below 14.75 tons of CO2. The program has ruled out many Chinese-built cars as a result, notably the top-selling Renault Dacia Spring, because its production utilizes power from a coal-fired plant in China.

The EU, as well as the U.S., will almost surely continue to protect manufacturing jobs on their home turf. The automotive sector in the EU employs 13.8 million people directly and indirectly, which is 6.1% of the region's total employment. Of those, 2.6 million people work directly in the manufacturing of motor vehicles, which is 8.5% of the EU's manufacturing employment. The EU is one of the world's largest producers of motor vehicles and the automotive sector is the largest private investor in R&D.

The U.S. auto industry employs around 4.3 million people, which is about 1.3% of the U.S. population and 1.7% of the U.S. workforce. However, the auto industry's broader impact on the country’s economy is much larger, supporting an estimated 7.25 million–9.7 million jobs. 

Protecting these jobs against Chinese incursion is one of the few issues that both right and left politicians agree on.