How High Do EV Tariffs Need to Be to Ward Off China?

One of the few things Democrats and Republicans agree on in Washington is that a majority of voters from both parties want whoever is in the White House and Congress to protect legacy automakers from inexpensive battery-electric vehicles from China, even if they are built in Mexico.

President Joe Biden has already announced a quadrupling of tariffs on Chinese BEVs to 100%, a doubling of duties on semiconductors and solar cells to 50%, and new 25% tariffs on lithium-ion batteries and other strategic goods including steel, to shield firms from Chinese excess production.

But a new analysis shows that even at a 100% tax, BYD’s Seagull EV would be the cheapest BEV in the U.S., spotlighting just how far U.S. automakers and foreign-owned transplants are behind China.

The new 100% tariff takes effect Sept. 27. According to AutoForecast Solutions, BYD’s lowest-priced BEV for the U.S. would cost only $12,000.

The Seagull, and the BYD Dolphin built on the same platform, have spooked U.S. automakers. Speaking about the difficulty of meeting government mandates around zero-emissions vehicles earlier this year, before the Biden Admin. relaxed the mandates, Ford CEO Jim Farley told analysts that China was a bigger challenge: “There’s a bigger thing here than the (U.S.) government. It’s called China. It’s called the BYD Seagull. It’s called a market that likely will sell 110 million EVs this year in China.”

Ford pulled back on pricier BEVs this year and is developing a fast-tracked BEV platform designed to compete around the $25,000 price point. Tesla Motors, which has by far the greatest number of BEV sales in the U.S., and the most mature supply chain, has not been able to crack the $30,000 price barrier profitably.

Electric vehicles accounted for over 50% of passenger vehicle sales in China in July. In the U.S., BEVs accounted for 8.5% of light vehicles during the same period, according to the latest S&P Global Mobility figures. Chinese automakers are embracing BEVs, while U.S. consumers have not had the same choices of BEVs priced below $40,000, let alone $20,000.

BYD has also had a longer-established vertical integration. It claims 16% of the global EV battery market, behind only CATL. Not even Tesla makes its own batteries yet.

Tariffs against Chinese BEVs are a politically charged topic given the hostilities between China and the U.S., with one factor being the subsidies the Chinese government gives its BEV makers. The UAW, a major Democratic Party supporter, is most keen to keep Chinese automakers out and from even exporting from Mexico via the US-Mexico-Canada Agreement (USMCA).

Chinese automaker Geely is ramping up production at a plant in the U.S. to produce Volvo EX90 BEVs and Polestar 3s this Fall. Both vehicles should qualify for federal tax credits. Geely-owned Volvo also qualifies for tariff refunds under a law that awards them to firms with U.S. manufacturing operations. The U.S. government does not release details of tariff refunds to individual companies.