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The European Union is reportedly on the verge of imposing additional tariffs on imports of Chinese-made electric vehicles due to illegal government subsidies, but investors and forecasters say they are unlikely to affect sales. We do not expect it to have a major impact.
If the EU measures are harsh, they could spur Chinese retaliation in the short term and persuade EU manufacturers to set up more factories in Europe in the long term, with potentially unexpected consequences. There is a strong possibility that local factories with low efficiency and low efficiency will be under pressure rapidly.
Consumers will also end up paying higher prices.
Last November, the European Commission announced that it would investigate allegations of subsidies by Chinese companies. SAIC Motor’s MG, Europe’s largest Chinese distributor, will be at the forefront of the investigation. The European Commission announced earlier this week that it had begun the registration process necessary to impose retroactive tariffs. The starting date is March 7th, and the European Commission could start imposing tariffs in July, retroactive to March 7th.
The committee gave no indication of the scale of the possible charges.
Import duties on sedans and SUVs in China are currently 10%. Last year, Chinese brands sold more than 350,000 sedans and SUVs, mainly electric vehicles, in Europe. MG took the lead with sales of 239,000 units, which is approximately double the number in 2022, mainly in EVs. BYD sells about 16,000 units, but it is making large-scale efforts to sell in Europe and has plans to build a factory in Hungary.
The EU is in a dilemma of its own making. The government has decreed that internal combustion engines must be phased out in favor of EVs by 2035, with combustion engines set to be phased out as mandated EV sales quotas expand rapidly. is. The EU doesn’t seem to realize that Chinese manufacturers are about five years ahead of European manufacturers and cost about 30% less, according to investment bank UBS.
As a result of the EU decision, forecasters expect EV sales to rise from around 2 million in 2024 to more than 9 million a year by 2030.
Cheaper Chinese EVs have an advantage in meeting the EU’s goals. Higher tariffs would increase prices and disadvantage European countries. The EU may dilute its goals, but so far it has not indicated any intention to change them.
Investment research firm Evercore ISI said Chinese automakers have an annual production capacity of 40 million vehicles but sell only 30 million vehicles, prompting an aggressive search for new overseas markets. In a report released in February, Evercore ISI predicts that China will capture 10.1% of European EV sales by 2030.
Local electric cars in China cost around $10,000, while EV prices in Europe, even the so-called “affordable” ones, often start around $27,000.
The European Commission did not say how much tariffs it would impose on imports from China, but any decision would need to take into account the possibility of retaliation, UBS said in a report.
“Moderate increases in import tariffs will not significantly change competitive dynamics. It is also unlikely that China will impose its own import tariffs (currently in the EU) that would negatively impact German premium/luxury brands Porsche, Mercedes and BMW. “It remains to be seen whether and to what extent this will be done by increasing the tax rate (10%) for vehicle manufacturing,” UBS said.
Bernstein Research said additional tariffs are likely, but their level is unclear.
How much will the new tariffs be?
“We see it as very likely that the European Commission will impose tariffs on some BEV imports from China in the future. The key question: What are the numbers? The key question that remains is “The size of the tariffs, but the regulations do not suggest that at all,” Bernstein said in the report.
“A key question for our automotive coverage will be which manufacturers will be found to have received anti-competitive subsidies. The key information we expect from the EC’s findings will be: It’s about who and how much,” Bernstein said.
Higher tariffs could slow China’s expansion and give European countries time to catch up in the short term. But China’s retaliation could hurt European luxury brands.
“In the long term, import tariffs on Chinese cars will accelerate China’s localization of European production, bringing more production to the stagnant European market, creating long-term headwinds (for Europeans),” Bernstein said. It is expected that this will occur.”
SAIC Motor’s MG is likely to be the target of the investigation, and any headwinds could be advantageous for rivals such as Stellantis, Renault and Volkswagen. Tesla could also be targeted as it accounts for about 30% of China’s sales to Europe. If China raises retaliatory tariffs, Porsche will be the biggest victim. Bernstein also said the impact of the tariffs would hit imports from China hard and hurt Chinese manufacturers in the long run if China builds more factories in Europe.
Allianz Trade said last year that unless the EU raises tariffs, strengthens batteries and other technologies, or persuades China to make cars in Europe, Chinese-made EVs will be sold to European automakers at a rate of 70 per year by 2030. It said it could result in a profit loss of 100 million euros ($7.7 billion). . Allianz Trade is a subsidiary of German insurance company Allianz.
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