EV tariffs expected to slow but not halt China's drive into European market
EU move against 'unfair' state support could spur BYD and others to localize production
HONG KONG -- The European Union's new tariffs on China-made electric vehicles may throw up some roadblocks for Chinese manufacturers looking to boost sales in the region, but the likes of BYD are expected to remain competitive against local producers.
The European Commission said on Wednesday that it will impose provisional tariffson Chinese EVs from July due to China's "unfair" use of state support. Definitive measures, if any, are expected to be confirmed by year-end.
Companies including state-owned SAIC Motor are being hit with the highest additional tariff, at 38.1%, while Warren Buffett-backed BYD has received the lightest rate, at 17.4%. Geely Automobile Holdings faces a 20% additional tariff. These are on top of the EU's existing 10% tariff on Chinese EV imports.
Following the news, BYD's shares in Hong Kong surged nearly 9% at one point on Thursday morning.
"BYD's cost advantage is high enough that they can profitably export even at a 35% tariff," said Eugene Hsiao, head of China autos at Macquarie Capital.
Hsiao said BYD may have received a lower rate because it is privately owned and backed by Berkshire Hathaway. The company has also been very clear about its aim to gradually build up its brand in the EU and appears more willing to work with local regulators, he said.
"BYD has shown a strong willingness to work with local European partners, including establishing relationships with local dealers, selling batteries to Tesla in Germany, planning production in Hungary, establishing shipping dedicated to the EU and possibly even further partnership in other EU countries like Italy," Hsiao said.
SAIC, which did not cooperate with the EU's anti-subsidy investigation, has received 11.74 billion yuan ($1.65 billion) in Chinese government subsidies over the past three years, according to a Nikkei Asia analysis. BYD received a little over half that amount, though it was still in the top 10 listed companies in terms of government subsidies.
SAIC has been China's leading auto exporter for the last eight years, selling more than 250,000 vehicles in Europe alone in 2023. It said in a statement on Thursday that its sales are due to technology innovation, not government subsidies.
"We are deeply disappointed with the decision of the European Commission," SAIC said. "The relevant measures not only violate the principles of a market economy and international trade rules but may also have a significant adverse impact on the stability of the global automotive industry and China-EU economic and trade cooperation."
BYD did not respond to a request for comment from Nikkei Asia.
Europe's new tariffs are far lower than the 100% duties recently unveiled by the U.S., but they are expected to have a more material impact.
China exported 482,000 pure EVs to the EU last year, accounting for 45% of the country's total electric vehicle shipments, according to China customs data. Exports to the U.S., meanwhile, were negligible.
But while the new tariffs will put pressure on Chinese EV sales there in the near term, their cars will likely remain attractive options for European drivers, according to Vicent Sun, an equity analyst at Morningstar.
"We think Chinese producers are still competitive compared with their rivals. The commission estimates that prices of Chinese EVs are typically 20% lower than prices of EU-made equivalent models. With additional tariffs, Chinese cars are at similar prices, but with more attractive designs and vehicle technology," Sun said.
The Kiel Institute for the World Economy had forecast that a 20% tariff would reduce Chinese EV imports to the EU by 25%. That would be 125,000 units, or $3.8 billion worth, of such vehicles.
Apart from the impact on profitability, the additional tariffs could drive localization.
"It is too early to say what impact the new tariff will have on Chinese OEMs with European market ambitions," Goldman Sachs said in a note, referring to original equipment manufacturers. "However, we believe the announcement will accelerate localization plans."
So far, Chinese EV makers have appeared cautious about expanding production in the EU as they await clarity on tariffs. Once they have that clarity, larger tariffs will encourage Chinese companies to build higher-volume production in China-friendly EU nations like Hungary, according to Macquarie Capital's Hsiao.
"Overall we still see challenges for China EV makers to penetrate Europe, and most acknowledge it will take time to build a brand and stronger presence," he said.
BYD said in December it would establish a factory in Hungary, while some Chinese EV companies are collaborating with European brands to enter the market. In April, Chery Automobile and Spain's Ebro-EV Motors agreed to develop EVs through a joint venture in Barcelona. Last month, European carmaker Stellantis said it had formed a joint venture with Chinese EV startup Leap Motor that will start selling electric vehicles in nine European countries this year.
On the other side is the question of what this means for European makers.
Following the EU announcement, Beijing vowed to "take all necessary measures" to defend its rights. Analysts agree that after such strong rhetoric Beijing has to do something, but it may feel the need for some restraint.
"Certainly the fear from the Europeans is that the Chinese will retaliate, and the Germans are the most exposed. I'm sure there will be some retaliation, but will it be commensurate? I think that remains to be seen," said Andy Mok, a senior research fellow at the Center for China and Globalization, a Beijing think tank.
"China is looking at this not just from an EV perspective, but also the broader relationship with Europe, and even more broadly, how it affects the overall geopolitical environment," Mok added.
Additional reporting by Kenji Kawase.