Tesla, BMW, Renault Could Face EU Import Duties on Chinese BEVs

BRUSSELS – Sales in Europe of China-built battery-electric vehicles, such as Tesla Models 3 and Y, BMW iX3 and Renault Dacia’s Spring, could all be hit if the European Union slaps proposed countervailing duties on inexpensive BEVs made in China.

The European Commission, the EU’s executive branch, claims Chinese government support, not manufacturing and labor efficiencies, is helping automakers and Western-owned plants in that country undercut BEV makers based in the EU.

The EC launched a formal anti-subsidy investigation of Chinese-produced BEVs’ effect on its 27-country market Oct. 4, three weeks after EC President Ursula von der Leyen told the European Parliament that “global markets are now flooded with cheaper Chinese electric cars and their price is kept artificially low by huge state subsidies. This is distorting our market.”

Shipments to the EU of BEVs (termed New Energy Vehicles by China) jumped 112% in the first seven months of 2023 on the year and 361% from 2021, EU customs data shows. The EC says China's share of BEVs sold in Europe has risen to 8% and could reach 15% by 2025.

Unusually, the probe is an EC initiative and not based on European industry complaints. Brussels acted, “having gathered sufficient evidence that the recent surge in low-priced and subsidized imports of electric vehicles from China into the EU posed an economic threat to the EU’s electrical car industry,” says an EC statement.

China’s Ministry of Commerce has branded the investigation “blatant protectionism that will disrupt and distort auto supply chains and industrial chains across the world, including in the EU.” A Chinese government statement argues China’s BEV industry has “developed rapidly with improved competitiveness in recent years, thanks to unremitting efforts in scientific and technological innovation, and the construction of complete industrial and supply chains.”

Under World Trade Organization rules, the EC has 13 months to conclude its investigation, then either lift or confirm provisional duties it can impose within nine months.

The EU currently levies a 10% tariff on BEV imports, whatever their origin. If the EC demonstrates Chinese-built EVs are 20% less expensive than EU brands because of the subsidies, then tariffs could hit 30%, although the EC spokesperson would not comment on potential duty levels.

“We are not for protectionism, but competition must be fair,” a Groupe Renault statement says of the investigation, noting: “We are increasingly seeing a situation of asymmetric competition appear, both with Chinese competitors and with American competitors, at a time when we are being asked for a massive transition towards electrification.”

Asked whether Renault is confident it can demonstrate that its China-made Spring model – currently the least-expensive BEV sold in Europe – does not pose unfair competition, the spokesperson says: “We seized an industrial opportunity by relying on an existing model within the Renault group which already has its production ecosystem in China,” adding, “We are responding to requests as part of this investigation which is ongoing.”

While the U.S. has not followed the anti-subsidy route to squeeze out China-made BEVs from the American market, it does already impose higher standard import duties: 27.5% on imports of Chinese BEVs, far above the EU’s current 10%. The U.S. duties are underpinned by tough rules of origin within its trade deals, insisting on significant local sourcing and assembly. Add to that the Inflation Reduction Act subsidies paid on consumer purchases of BEVs made in the U.S. (and Canada/Mexico), and Chinese exporters face a tough barrier to enter the U.S. BEV market, countervailing duties or not.

The result has been a low level of BEV exports from China into the U.S. Before the signing of the IRA and its subsidies in August 2022,  exports weregrowing.Trade data from the United Nations’ Comtrade system showed that in 2022, mainland China exported 12,148 BEVs to the U.S., generating sales worth $429 million. That was up from 6,639 in 2021 ($234 million); and 3,318 in 2020 ($138 million). Before that year, China BEV exports to the U.S. were negligible. 

A September 2023 report from the Washington-based Center for Strategic and International Studies says: “Exports from China to the United States remain very low due to high tariffs and relatively low EV demand prior to the Inflation Reduction Act coming into force.” It notes that the only China-based manufacturer targeting the U.S. BEV export market has been Volvo brand Polestar, both owned by China’s Zhejiang Geely Holding Group. It has been producing three BEV models from assembly plants in Chengdu in southwest China (pictured, below) and Taizhou on the east coast.

Polestar Chengdu_0

Even that export flow might dwindle in future as Polestar is building a plant in Charleston, SC, with production to begin next year. Polestar has announced it will manufacture a new premium battery-electric SUV at this U.S. plant, tapping American appetites for larger passenger vehicles like CUVs and SUVs.

By contrast, the Japanese government is taking a hands-off approach to Chinese BEVs, with manufacturers considering these vehicles too low-quality to crack Japan’s auto market.  

Yoshitsugu Hayashi, a professor of transportation policy at Chubu University, tells Wards: “When the first Chinese EVs were released, Japanese car makers purchased some, brought them to Japan and took them apart to see how advanced they were. They quickly concluded they were cheap and easy to make, but they were almost toys.”

With manufacturers concluding these models were “simple and with limited capabilities – and far behind Japanese or German cars,” local automakers “are not worried,” Hayashi says, adding Chinese exporters cannot supply the quality and aftermarket service that Japanese consumers expect.

Moreover, if Japan started imposing tariffs on Chinese BEVs, China might do the same on Japanese exports. So, China’s BYD opened its first dealership in Yokohama in February and started taking orders for its second BEV, the Dolphin, from Sept. 20. The Seal model is expected to be introduced in early 2024, BYD says. The automaker is planning 100 dealerships across Japan by January 2026.

– with Keith Nuthall in Ottawa and Julian Ryall in Tokyo