EU to impose tariffs of up to 45% on Chinese electric vehicles

The European Union is trying to reduce dependence on China, former ECB president Mario Draghi warning that China's 'state-sponsored competition' is a threat that may leave the EU vulnerable to coercion

Fri, 04 Oct, 2024 - 16:38

The European Union voted on Friday to impose tariffs as high as 45% on electric vehicles from China in a move set to increase trade tensions with Beijing.

The European Commission can now proceed with implementing the duties, which would last for five years. Ten member states voted in favour of the measure, while Germany and four others voted against and 12, including Spain, abstained, according to people familiar with the results.

The decision by the EU comes after an investigation found that China unfairly subsidised its industry. Beijing denies that claim and has threatened its own tariffs on European dairy, brandy, pork, and motor sectors.

The EU is actively trying to reduce its dependencies on China, with former European Central Bank president Mario Draghi warning last month that “China’s state-sponsored competition” was a threat to the EU that could leave it vulnerable to coercion. The EU, which did €739bn in trade with China last year, was split on whether to move forward with the duties.

The EU and China will continue negotiations to find an alternative to the tariffs. The two sides are exploring whether an agreement can be reached on a mechanism to control prices and volumes of exports in place of the duties.

“The EU and China continue to work hard to explore an alternative solution that would have to be fully WTO-compatible, adequate in addressing the injurious subsidisation established by the commission’s investigation, monitorable and enforceable,” the commission said in a press release announcing the decision.

The new tariff rates will be as high as 35% for EV manufacturers exporting from China. The duties would be on top of the existing 10% rate.

Chinese EV makers will have to decide whether to absorb the tariffs or raise prices, at a time when slowing demand at home is squeezing their profit margins. The prospect of duties has prompted some Chinese vehicle makers to consider investing in factories in Europe, which might help them dodge tariffs.

A statement from Geely Holding Group Co, which controls Sweden’s Volvo and the UK’s Lotus Cars, criticised the decision, saying it was “not constructive and may potentially hinder EU-China economic and trade relations, ultimately harming European companies and consumer interests".

Slowing momentum

The additional tariffs have already slowed Chinese carmakers’ momentum in Europe, with their sales plunging 48% in August to an 18-month low. The region is a desirable destination for China’s manufacturers because EVs sell in relatively high numbers and at much more robust prices than other export markets.

The share of electric cars sold in the EU that were made in China climbed from around 3% to more than 20% in the past three years. Chinese brands accounted for around 8% of that market share, as international companies that export from China, including Tesla, make up the rest.

Still, Europe’s tariff hike will have a “minor impact” on Chinese manufacturers because the region accounts for only a fraction of their total sales, according to Daiwa Securities analyst Kevin Lau. Europe contributed between 1% to 3% of overall sales for BYD, Geely, and SAIC Motor Corp in the first four months of this year, he estimated.

A spokesperson for Volkswagen AG said in a statement on Friday that tariffs were the “wrong approach” and would not improve European competitiveness.

German vehicle makers including Volkswagen, Mercedes, and BMW would be hit hardest in a trade spat as China accounted for roughly a third of their car sales in 2023.