EU's potential tariff could be self-destructive as China supports 60% of the bloc's EV imports

Nuying Huang, Taipei; Peng Chen, DIGITIMES Asia 0

Credit: AFP

The European Union is expected to announce punitive tariffs on China-made EVs after the European Parliament's election this week. Many European-branded vehicles and Tesla EVs are manufactured in China. These cars, which will be subject to the higher levy, account for 60% of the EVs that the EU imports.

According to media reports, the EU and Chinese governments are discussing the matter. China said it will impose punitive tariffs on European food products once the bloc initiates an EV trade war. Sources said the move will be a tailored retaliation for the EU.

China has said it plans to raise the tariff on gasoline cars with engines larger than 2.5L from 15% to 25%. Market sources said that although this is meant as retaliation against the EU and US, Japanese and European carmakers will likely take the most serious hit.

Many legacy Europe-based automakers and Tesla manufacture their EVs in China and export them to the European market. These vehicles take up 60% of the EU's imported EVs.

To mitigate the impact on European carmakers from the potential tariff increase, the EU might categorize automakers based on the subsidies they receive from the Chinese government and impose different levels of tariffs. For example, BYD and Geely, which are said to accept tremendous funding from the government, will likely be targeted for a 25% tariff. European carmakers receive fewer subsidies in China, so they will experience fewer levy increases.

According to media reports, low-cost EVs from Renault and Stellantis-owned Citroen are made in China and shipped to Europe. These vehicles will be highly sensitive to tariffs.

Volkswagen has manufactured its MEB platform in China. It also utilizes idle production capacity in the country to make Tavascan, an SUV. The company aims to launch the vehicle in Europe in the third quarter of 2024. The vehicle will not be available in China.

While Merceds-Benz does not export the EVs it made in China to Europe, its joint venture plant with Geely that produces Smart vehicles will be impacted. Geely has been one of the main targets of the EU's anti-subsidy investigation.

The upcoming trade war will likely affect China-based joint venture car companies between Chinese and German automakers, including SAIC Volkswagen and FAW-Volkswagen.

BMW is also expected to suffer as the company exported 18,000 units of the China-made iX3 model to Europe in 2023. Some of Mini's vehicles are also manufactured in China. In addition, BMW has established a joint plant with China-based Brilliance Auto Group.

Tesla shipped its Model 3s and some Model Ys made in Shanghai to Europe while operating a plant near Berlin. The company exported Model Ss and Model Ys from the US to Europe. The US EV maker is expected to enjoy the same tariff rate in Europe as its German counterparts.