November 2024: Updated analysis available

Tariffs prompt Chinese EV brands to expedite their production plans in the European market.

The European Commission finally confirmed provisional tariffs that will be applied to Chinese battery electric vehicle (BEV) imports into the EU on July 4. These tariffs, ranging from 17.4% to 37.6%, were slightly below the level originally threatened by the Commission when they were first outlined in June, and will apply for a maximum duration of four months.

A final decision will be made on definitive tariffs within that timeframe through a vote by EU member states. If approved, the definitive duties will stay effective for a period of five years. Regarding Tesla, which by exports volume is the largest China-made EVs exporter to the EU, the Commission has said the that the company may receive an individually calculated duty rate at the definitive stage.

Response from European Automakers and Lobby Groups

There has been a notable response from automakers and the automotive lobby groups in Germany, which in recent times has been concerned over the prospect of countermeasures being imposed by China's government. Volkswagen (VW) Group and BMW Group have indicated that these measures will not help the competitiveness of European OEMs.

The tariff rates differ depending on the manufacturer and their perceived cooperation with the Commission's investigation into unfair business practices by the Chinese government. BMW's new battery electric Mini Cooper, manufactured in China, currently faces the highest level of tariffs due to its launch being too late to participate in the Commission's analysis. However, the launch is expected to be delayed for four months until an accelerated review process can take place.

Germany's automotive industry lobby group, VDA, has also called on China and the EU Commission to reach a solution through open and constructive dialogue. The Commission is holding the door open for this possibility before bringing the tariffs fully in to force from November 2024. A major reason for their willingness to negotiate is the threat of retaliatory measures from China, both to the automotive industry and in the wake of China's Ministry of Commerce (MOFCOM) taking anti-dumping steps on pork products and cognac from Europe.

"It's clear that member states are also interested to protect their automotive industries from unfair competition," said Commission vice-president Valdis Dombrovskis following the confirmation of the duties. "Our aim is to...ensure fair competition and a level playing field." He also said that "talks with China are ongoing and indeed should a mutually beneficial solution emerge, we can also find ways not to apply at the end of the day the tariffs. But it is very clear this solution [would] need to solve that market distortion that we are currently having...and it needs to be market compliant".

Some automakers have suggested that the initial impact on vehicle pricing due to the tariffs will only occur eventually as it depends on the vehicles they have in stock. Renault Group, NIO, and SAIC Motor have indicated that price increases are not a near-term issue. However, SAIC Motor is requesting a hearing from the Commission regarding the higher level of provisional EV tariffs imposed on them.

Chinese EV Carmakers Aren't Slowing Down Their Ambitions

The new measures are not expected to stem the tide of Chinese automakers with global ambitions. Xpeng and NIO have both indicated that they are here to stay, with the latter stating that it hopes "to reach a solution with the EU before the definitive measures are applied in November 2024". Denza, a JV brand owned by BYD and Mercedes-Benz Group that is building China-made EVs has also indicated to that it is continuing with its plans to enter the EU market despite tariffs.

S&P Global Mobility is currently in the process of updating its sales forecast to reflect the impact of the confirmed provisional tariffs. However, it is worth reaffirming that given their provisional nature, there could be further changes down the line, depending on the outcome of negotiations.

The tariffs may prompt Chinese automakers to expedite their plans for investing in EU assembly or exporting from countries that have friendlier EU trading relationships. Indeed, earlier this week, plans were unveiled for BYD to invest in Turkey, which will allow it to supply vehicles to the European market. Without these kinds of investments, a 40% import tariff would be applied to passenger cars shipped in by Chinese automakers. This move could also complement BYD's planned assembly facility in Hungary.

SAIC Motor, GAC, and Chery have similarly been linked with Europe-based production. Chery is building an assembly relationship in Spain and potentially Italy as well. At the same time, for BMW Group, any tariffs applied to the battery electric Mini Cooper and the upcoming Mini Aceman should not be a long-term issue, given that there are already investment plans under way that will lead to production of these vehicles taking place at its Oxford (United Kingdom) facility during the second half of the decade.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.