The European Commission is set to impose additional tariffs of up to 25% on electric vehicles imported from China, despite lobbying from several countries against the move, according to a new report.
The Commission will inform automakers today (June 12) it will provisionally apply additional duties on top of its existing 10% levy on Chinese EVs from next month, because its carmakers benefit from excessive subsidies, the Financial Times reported, citing people familiar with the matter.
The EU tariffs – much smaller than duties applied by the US in May – are likely to prompt stern words and possible retaliation, as Beijing has warned. But some industry insiders suspect a deal may be negotiated before the move is put to a vote in October as a handful of Chinese carmakers have been looking to set up production bases in the bloc to avoid tariffs.
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Less than a month after Washington quadrupled duties for Chinese EVs to 100%, Brussels will set much lower tariffs for imports from Chinese makers such as BYD and Geely, as well as western producers such as Tesla that export cars from China to Europe.
The move – expected to bring in more than 2-billion euros a year – comes as European automakers are being challenged by an influx of lower-cost EVs from Chinese rivals. However, there is virtually no support for tariffs from the continent’s auto industry.
German automakers in particular are heavily dependent on sales in China – and thus fear retribution from Beijing – and European auto firms also import their own Chinese-made vehicles.
But European Commission president Ursula von der Leyen has repeatedly said Europe needs to act to prevent China from flooding the bloc’s market with subsidized EVs. The tariffs are strongly backed by France and Spain, but opposed by Germany, Sweden and Hungary.
Trade skirmish possible
“If provoked, the reaction and repercussions could lead to a trade war which would be devastating for a region that is still heavily dependent on Chinese dominated supply chains in order to achieve its lofty climate goals,” Will Roberts, head of automotive research at Rho Motion, said.
China has rebuked the EU over the anti-subsidy investigation, urged cooperation and lobbied individual EU countries, but not fully spelt out what its response to tariffs would be.
Beijing has already launched an anti-dumping investigation into mostly French-made imports of brandy. It also passed a law in April to strengthen its ability to hit back should the United States or EU impose tariffs on exports from the world’s second largest economy.
The EU’s pre-disclosure notice comes a few weeks before the July 4 deadline for imposing provisional measures. They could though apply retroactively for the prior 90 days.
Interested parties will be given three working days to comment on the accuracy of the Commission’s calculations.
The investigation will continue until late October, when a decision on whether to impose definitive duties, typically for five years, will be taken. Proposed duties would apply unless EU governments overwhelmingly oppose them.
That leaves time for a potential deal to be struck between Brussels and Beijing. Chinese executives hope such talks will soften the blow.
Analysts expect tariffs of between 10% and 25%. Every additional 10% on top of the existing 10% levy would cost EU importers of Chinese EVs about $1 billion, based on 2023 trade data, another blow for a sector struggling with slowing demand and falling prices at home.
That cost will grow this year as Chinese EV makers expand exports to Europe.
Imports of China-made EVs have been dominated by western carmakers Tesla, Renault’s Dacia and BMW but the Commission has forecast that Chinese brands’ share of EVs sold in the EU, which has risen to 8% from below 1% in 2019, could reach 15% in 2025. It says prices are typically 20% below those of EU-made models.
Chinese models exported to Europe include BYD’s Atto 3, SAIC’s MG and Geely’s Volvo.
German carmakers fear reprisals
Top executives at BMW, Mercedes and Volkswagen have warned against imposing import duties on vehicles from China, where HSBC estimates the German carmakers generate 20-23% of their global profits.
Among EU governments, France says Europe needs to defend itself against China’s subsidized production, while German Chancellor Olaf Scholz has said he is not convinced of the need for tariffs.
Meanwhile, the market is evolving as European automakers team up with Chinese counterparts to bring EVs to market more cheaply and quickly.
Chinese EV makers and suppliers are also starting to invest in European production, which would avoid tariffs.
Executives at Europe’s legacy carmakers said recently that stiffer tariffs might temporarily shrink or eliminate the cost advantage Chinese automakers gain from their supply chains.
But it will not prevent the reckoning that China’s lower cost EVs will force on them.
Stellantis CEO Carlos Tavares said carmakers “don’t have much time” to adjust their businesses and depended on the removal of “regulatory chaos and the bureaucracies that we have in our backyard.”
- Reuters with additional input and editing by Jim Pollard
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