German automakers pressure EU leaders to drop China EV tariffs
European Commission's move politically driven, harms local industry, insiders say
HAMBURG, Germany -- German automakers and industry associations are calling on the European Commission (EC) to roll back a threat to slap punitive import tariffs on Chinese electric vehicles, saying the move hurts local industry and jeopardizes their ability to do business in China.
China on Friday warned that the levies could spark a trade war, with a Commerce Ministry spokesperson saying "responsibility lies entirely with the EU side" just as Germany's economy minister, Robert Habeck, started a three-day visit in Beijing.
Backed by France, the Commission unveiled last week import tariffs that could total up to 48% on Chinese EVs after finding manufacturers unfairly benefited from state subsidies. German automakers say they will be hit much harder than their French and Italian competitors because the German and Chinese car markets are tightly intertwined.
Nearly 14% of the 111,000 EVs registered in Germany were produced in China in the first four months of this year, according to Center Automotive Research (CAR) in Bochum, Germany. Figures from the German Association of the Automotive Industry (VDA) showed about 10% of the 337,000 EVs made by German companies in China were exported to the EU last year, meaning these automakers would also face the new tariffs.
A Volkswagen (VW) spokesperson said the decision was detrimental to EV markets in Germany and Europe already suffering weak demand.
"The increase in import tariffs in the EU could trigger a fatal dynamic of measures and countermeasures and result in an escalation of trade conflicts," the VW spokesperson said. "We assume that the negative effects of the decision will outweigh any positive aspects."
Similarly, BMW CEO Oliver Zipse said in a statement to Nikkei Asia, "This decision for additional import duties is the wrong way to go. The [European] Commission is thus harming European companies and European interests."
Some EV models made by European brands such as BMW, Mini, VW, Polestar, Volvo, Smart and Dacia -- which makes the cheapest EV model in Europe, the Spring -- are built in China. Some Tesla cars are also made there and exported to Europe.
The tariff rates are provisional but will be implemented from July 4 if negotiations between the Commission -- the executive branch of the European Union -- and Chinese authorities do not yield any result. The rates will commensurate with the level of cooperation each carmaker showed in the EU investigation and state-owned SAIC faces the highest at 38.1% on top of an existing 10% import tariff.
So far, Beijing has remained uncompromising. China's Commerce Ministry was quoted on Thursday by media as saying that EU authorities demanded huge volumes of detailed information from Chinese companies in its investigation, over and above what was typically required for such a probe.
If negotiations do not go well, German businesses in China could also suffer retaliation from Beijing, industry insiders say. German manufacturers exported about 216,300 vehicles to China last year, CAR figures showed.
Chinese media separately reported Thursday local carmakers were calling for a retaliatory 25% tariff on European imports.
"These [EU] tariffs would harm German automakers, as they would be slapped with retaliatory tariffs; they would harm consumers, as it would lead to higher car prices; and they would harm the environment, as they would increase the attractiveness of combustion-powered cars at the expense of EVs," said CAR director Ferdinand Dudenhoeffer.
Others agreed that the tariff move was counterproductive to the EU's aim of becoming carbon neutral by 2050.
"China plays a crucial role in a successful transformation towards electromobility and digitalization -- a trade conflict would also endanger this transformation," VDA President Hildegard Mueller said in a statement.
Investor worries about the negative impact on European carmakers are already playing out in the stock market. In the two days after the EC's announcement, VW and BMW shares fell about 6% and 5% respectively, underperforming the benchmark DAX's fall of about 2%.
By contrast, shares in Chinese carmaker BYD jumped nearly 9% the day after the tariff announcement on investor optimism that it would maintain its competitive edge despite the 17.4% tariff it faces on European exports, a lower rate than those faced by its Chinese rivals.
Ultimately, European politics could hold sway in the negotiations. Some commentators said EC President Ursula von der Leyen pushed through the tariffs, with strong support from French President Emmanuel Macron, hoping she would secure his backing for a second term.
However, she also needs the vote of German Chancellor Olaf Scholz, who has been quoted by local media as saying that he still hoped the tariffs would be dropped in negotiations with Beijing. Talks toward this goal were "promised," Scholz was quoted as saying on the sidelines of last week's G7 summit in Italy.
Von der Leyen is a favorite for the presidency, even though a meeting of EU leaders on Monday failed to result in a decision on the Commission's leaders. Her confirmation, though, is expected at a summit on June 28-29, during which the EV tariffs could also be discussed.
In terms of possible approaches to a compromise between Brussels and Beijing, a political observer pointed out that the differentiation of tariffs gives both sides some face-saving leeway.
"The commission could lower the tariffs rates for those Chinese automakers that were deemed cooperative in the investigation, while those Chinese automakers that did not cooperate may [now] provide the requested information," said Lutz Berners of Berners Consulting, which advises the German government and businesses on China-related projects.
Similarly, in a recent academic paper published on the Sinification blog, Jian Junbo, deputy director of the Center for China-Europe Relations at Fudan University, said the EU has left room for maneuver.
He said Beijing could adjust its subsidy programs by aligning them with Western practices and also increase imports of goods from "certain" EU member states.