The vehicles are scheduled to be shipped to Europe at Taicang Port on December 19, 2022, in Suzhou, China.
Vcg | Visual China Group | Getty Images
The European Union will need to impose higher-than-expected tariffs of up to 55% on Chinese electric vehicles to limit their introductions to the block, according to a new analysis from the Rhodium Group.
The findings, released on Monday, come amid an ongoing EU investigation into subsidizing EV imports from China.
Rhodium Group, which expects the EU to impose tariffs of 15% to 30% on Chinese electric vehicles, said those tariffs were unlikely to be enough to check competition from China.
“Even if the tariffs come at the high end of this range, some China-based producers will still be able to make comfortable margins on the cars they export to Europe because of the significant cost advantages they enjoy,” the report said.
Chinese companies like BYD, which toppled Tesla to become the world’s largest EV maker last year, can sell cars at much higher rates and margins in regions like the EU compared to the domestic market, rather than beneficiary 10% invoice. Chinese electric vehicle manufacturers have been locked in a fierce price war in their home market.
BYD’s Seal U model, which sells for 20,500 euros in China and 42,000 euros in the EU, makes an estimated profit of 1,300 euros in its home market against 14,300 euros per car in Europe, Rhodium said. Even after the 30% tariffs, a company like BYD will have higher profits in the EU, he added.
The report said BYD would likely need to cut prices to achieve its goals of gaining more market share in the EU. A 30% tariff rate would leave enough room to do so.
“Much tighter tariffs of around 45%, or even 55% for fiercely competitive producers like BYD, would probably be necessary to make exports to the European market unattractive on commercial grounds,” the report said.
The EU investigation
The European Commission, the executive arm of the EU, launched an investigation into Chinese EVs and subsidies last year, with officials saying a flood of cheap vehicles threatened domestic producers.
According to some experts, incentives put in place in China in the early 2010s led to a rise in startups and an increase in battery capacity in the country, paving the way for globally competitive and affordable EVs.
Chinese EV makers have already faced resistance from the US amid high tariffs and political opposition, making the European market more important for companies like BYD seeking global expansion.
EVs from Chinese companies are expected to make up 11% of the EU market in 2024 and could reach 20% by 2027, according to an analysis by the European Federation for Transport and Environment.
As for vehicles made in China by non-Chinese companies, the figure is expected to exceed 25% this year.
Imports of electric vehicles from non-Chinese companies could also come under the EU subsidy probe, with Rhodium estimating that tariffs at the 15%-30% level could wipe out the business of foreign players such as BMW or Tesla shipping cars from China.
In response to policy risks, EV manufacturers are working to shift production to Europe. BYD plans to build a factory in Hungary.
But Rhodium adds that Brussels could use other means to protect the European electric vehicle industry, such as limiting Chinese imports on national security grounds or increasing consumer subsidies for EU-made vehicles.
The Chinese government has slammed the EU subsidy probe as “blatant protectionism”, arguing that its companies are simply more competitive than their Western counterparts.