November 2024 update available

Many EU-based automakers are not happy about the announcement of new tariffs against Chinese EV imports.

This week's news that the EU intends to issue import tariffs of up to 38.1% on Chinese battery electric vehicle (BEV) imports has been met with a wide spectrum of reaction across the automotive industry and the world of politics.

What is perhaps most extraordinary about the development is that it runs counter to the wishes of many European carmakers. The EU made the announcement through its legal arm, the European Commission, which has been conducting an investigation since October into subsidies provided by the Chinese government to domestic automakers for expanded BEV development. The Commission believes these subsidies are unfair and illegal.

In its statement of intention, the Commission said its investigation was ongoing and that it "has provisionally concluded that the battery electric vehicles (BEV) value chain in China benefits from unfair subsidization, which is causing a threat of economic injury to EU BEV producers."

The investigation is also looking into the potential impact on importers, users and consumers of BEVs in the EU. The Commission has asked for discussions with the Chinese government to see if these issues can be resolved in a manner which meets with World Trade Organization (WTO) guidelines. If those discussions yield no results, or do not take place, then what the Commission describes as provisional countervailing duties would be introduced from July 4, 2024.

German manufacturers and the German government — who one would think have a lot of sway in lobbying the European Commission — are united in their opposition to this plan. Why? Because of the near certainty that reciprocal tariffs will be implemented. China is a particularly large market for the big-three volume premium German carmakers: Mercedes-Benz, BMW and Audi.

While those carmakers have spent billions in installing production in China, they also import vast quantities of vehicles that are built in Germany, the United States and elsewhere into China as well. These imported models tend to be those brands' high-price-point super premium models. They also happen to be their most profitable.

BMW CEO Oliver Zipse commented that "Protectionism risks starting a spiral: Tariffs lead to new tariffs, to isolation rather than cooperation. From the BMW Group's point of view, protectionist measures, such as the introduction of import duties, do not contribute to successfully compete on international markets."

His counterpart at the Mercedes-Benz Group Ola Källenius added, "We do not need increasing barriers to trade. We should work on dismantling trade barriers in the spirit of the World Trade Organization."

The Volkswagen (VW) Group also highlighted that this EU directive is the opposite of what the European market is seeing — a slowdown in BEV buying now that the low-hanging fruit of business/fleet buyers and early adopters has been picked. And it will not only be Chinese OEMs that will potentially be subject to these tariffs — Tesla, BMW, Volvo, Polestar and Dacia are all building cars in China that they are importing into Europe as well. Despite being European manufacturers, they will have to pay extra to sell these cars in their home region markets.

German automakers' opposition, and indeed that of the German government representing them, to the tariffs is understandable, but it is by no means universal. Adolfo Urso, Italy's Minister of Economic Development, said that he welcomed the EU's announcement, likely seeing it as an opportunity to defend the country's own industry while attracting investment from some of the affected automakers with which it has previously held discussions.

The dichotomy that exists between the reactions of some governments and carmakers over the tariff row can possibly be best summarized by Carlos Tavares, the CEO of Stellantis. A few weeks ago he said that tariffs were "a major trap for countries that go down that path," while warning that European carmakers are in a "Darwinian" struggle with their Chinese rivals, something that could have massive social consequences as jobs are cut in order to compete.

Yesterday at Stellantis' Investor Day, Tavares reiterated that he believes a strong protectionist stance taken by various countries only hurts competitiveness, noting that the only way to win is to figure out how to truly compete. The approach to China, he said, requires going on the offensive with better costs and speed.

Tavares added that most Chinese automakers have a 30% cost advantage, based largely in competitive electric architectures, but he also said that it is possible for automakers like Stellantis to catch up. Although protectionism may help the European industry in the short term, it will not encourage the evolutionary step it needs to survive in the long term.

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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.