Aerial photograph shows electric cars for export stacked at the international container terminal of Taicang Port in Suzhou, in China’s eastern Jiangsu Province. The EU and China have reportedly agreed to start talks on the planned imposition of tariffs on Chinese-made EVs.
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China’s commerce ministry said it “does not accept” tariffs imposed by the European Union on Chinese electric vehicles, after the bloc increased tariffs on Chinese EVs to as high as 45.3% on Wednesday.
The extra tariffs will range from 7.8% for Tesla to 35.3% for SAIC Motor, and stack on top of the 10% standard import duty for cars to the EU.
In a statement, the ministry said that “China has repeatedly pointed out that the EU’s anti-subsidy investigation on Chinese electric vehicles has many unreasonable and non-compliant aspects, and is a protectionist practice of ‘unfair competition’,” according to a Google translation.
The EU launched an “anti-subsidy” investigation into Chinese EVs last year, alleging they were illegally subsidized and thereby “causes or threatens to cause economic injury” to the bloc’s EV industry.
China has already filed a lawsuit under the World Trade Organization dispute settlement mechanism. The commerce ministry said “China will continue to take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”
China’s commerce ministry also highlighted the EU has indicated it will continue to negotiate with China, adding that both sides are conducting a new round of consultations.
It also expressed hope that the EU will “work with China in a constructive manner…, reach a solution acceptable to both sides as soon as possible, and avoid escalation of trade frictions.”
On Oct. 25, Reuters reported the two sides were looking at possible minimum price commitments from Chinese producers or investments in Europe as an alternative to tariffs.
Shares of Chinese EV makers were mostly lower in morning trading Wednesday, with heavyweight BYD trading close to the flatline while Nio and Xpeng lost 3.07% and 0.11% respectively.
Visitors are looking at a BYD DM-i electric car at the 2024 Beijing International Automotive Exhibition in Beijing, China, on May 3, 2024. (Photo by Costfoto/NurPhoto via Getty Images)
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Shares of Chinese electric vehicle makers mostly surged on Thursday after the European Union announced higher tariffs of up to 38% on Chinese EVs a day earlier.
Chinese EV-maker BYD, which was the top gainer on the Hang Seng Index, jumped 8% during morning trade but pared some gains to trade at about 6% in the afternoon. Geely was up about 4% initially, while counterparts Nio and Li Auto saw their shares climb about 1.5%. State-backed SAIC was down 1.5% in later afternoon trade.
Citi analysts said the EU’s additional tariffs were “generally benign,” while one analyst from Morningstar pointed out that the additional duties were “modest” in comparison to U.S. hikes on Chinese EVs last month.
BYD vs Geely
On Wednesday, the EU said it would impose extra tariffs on Chinese EV players with a large footprint in Europe. BYD will be subject to additional tariffs of 17.4%, Geely will get an extra 20% duty. SAIC will have to pay additional duties of 38.1% – the highest among the three. This is on top of the standard 10% duty already imposed on imported EVs.
All three manufacturers were sampled in the EU probe, which is ongoing.
Other Chinese EV firms, which cooperated in the investigation but have not been sampled, would be subjected to 21% in extra tariffs while those which did not cooperate in the investigation would face 38.1% in additional duties, the commission said.
The punitive tariffs could be impactful for the EV sector, but would not derail China’s ongoing recovery.
The EU said in a statement it has provisionally concluded that Chinese EV makers benefits from “unfair subsidization,” which resulted in “threat of economic injury” to EU’s EV industry.
“The move is modest compared with the stiff 100% tariffs on Chinese EV imports into the U.S., hiked from 25% last month, by the Joe Biden administration and the 25% provisional duties are in line with market expectations of 20%-25%, in our view,” said Vincent Sun, equity analyst at Morningstar, in a Wednesday note.
Citi analysts on Thursday said the tariff hike is “generally benign” compared to their estimates of 25% to 30%. “The punitive tariffs could be impactful for the EV sector, but would not derail China’s ongoing recovery,” said Citi.
The additional duties come after the EU launched a probe in October. The duties are currently provisional, but will be introduced from July 4 in the event that discussions with Chinese authorities do not result in a resolution, the commission said in a statement. Definitive measures will be placed within four months of the imposition of provisional duties, the bloc said.
In response to the provisional duties, China said Wednesday the move was “blatant protectionism that will create and escalate trade frictions.” A spokesperson for the Ministry of Commerce said Beijing was “deeply concerned and strongly dissatisfied” with the development as it “disrupts and distorts” the global EV industry.
Joseph Webster, senior fellow at the Atlantic Council’s Global Energy Center, said the EU “seems to be warning” Chinese state-backed SAIC to build a production facility within Europe, or else face tariffs.
“China’s SAIC group received the maximum tariff rate of 38.1 percent. The automaker has a limited footprint on the continent, and it has yet to select a site for its first European production facility, despite nearly a year of consideration,” said Webster in a Wednesday report.
“Both BYD and Geely have substantial investments in Europe,” Webster said.
Setting up local factories could be “the ultimate solution” for China’s original equipment manufacturers in the long run, Nomura analysts said Thursday, adding that these companies have started to seek overseas expansion “in order to better fit into the global auto market.”
China’s reaction is the next thing to look out for, analysts said, with possible retaliation from Beijing.
Citi said China “looks set to retaliate but not escalate,” as the “benign” tariffs could bring “contained retaliation.”
“The key here will be how China reacts to this, and then also how the EU reacts to some of these requests [from] companies like Tesla to reconsider the tariffs,” said Paul Triolo, partner for China and technology policy lead at Albright Stonebridge Group.
“The danger is getting into sort of a tit-for-tat tariff battle here. Nobody seems to want this,” Triolo told CNBC’s “Street Signs Asia” on Thursday, adding that the Commission may “show some flexibility, as they did in making this decision.”
