EU's High Tariffs on Chinese EVs: Impacts and Analysis

I. Background Overview

On October 4, 2024, the European Union (EU) member states voted to pass a proposal to impose countervailing duties on Chinese electric vehicles. According to the decision of the European Commission, Chinese electric vehicles will face import tariffs of up to 45%, with specific tax rates as follows:

Tesla: 7.8%

BYD: 17%

Geely: 18.8%

SAIC: 35.3%

Other electric vehicle manufacturers not individually sampled: 20.7%

This decision was made after the European Commission conducted an anti-subsidy investigation into Chinese electric vehicles, aiming to protect the EU automotive industry from unfair competition caused by Chinese subsidies.

II. Impact Analysis1. Impact on Chinese Electric Vehicle Exports

1) Increased Costs: High tariffs will significantly increase the cost of Chinese electric vehicles in the European market, reducing their price competitiveness. For instance, SAIC Motor Corporation will face a total tariff of 45.3%, which will substantially raise the price of Chinese electric vehicles in the European market.

2) Decreased Market Share: The increase in costs will lead to a decline in sales of Chinese electric vehicles in the European market. According to data from 2023, the penetration rate of Chinese electric vehicles in the European market has jumped from 3.9% in 2020 to 25%. The implementation of tariffs will suppress this growth trend.

3) Corporate Strategy Adjustments: To cope with high tariffs, Chinese automakers may accelerate their localization production layout in Europe. For example, BYD has reached an agreement with the European dealer group Hedin Mobility to become its designated dealer in the German market.

2. Impact on the European Union's Automotive Industry

1) Enhanced Competitiveness: In the short term, the EU's high tariff measures may protect local car manufacturers, giving them a certain advantage in competition with China. Companies such as German automakers Volkswagen, Mercedes-Benz, and BMW may benefit from this.

2) Long-term Effects: In the long run, protectionist measures may weaken the competitiveness of the EU's automotive industry. A lack of external competition could lead to stagnation in technological innovation and production efficiency among EU carmakers. Additionally, high tariffs may increase the cost for European consumers to purchase electric vehicles, thereby suppressing market demand.

3. Impact on China-EU Trade Relations1) Intensified Trade Friction: The European Union's imposition of high tariffs on Chinese electric vehicles may trigger trade frictions between China and Europe. The Ministry of Commerce of China has clearly expressed its opposition to this decision and called for resolving differences through dialogue. If the two sides fail to reach a consensus, China may take retaliatory measures, further escalating trade tensions.

2) Reduced Cooperation Opportunities: The high tariff measures may hinder cooperation between China and Europe in the field of new energy vehicles. For instance, cooperation between Chinese and European car manufacturers in terms of technology exchange and market access may be affected.

III. Future Outlook

1) Possibility of Sino-European Negotiations

Although the European Union has passed a proposal to impose high tariffs on Chinese electric vehicles, there is still a possibility for both sides to reach a settlement through negotiations. The European Commission stated in its declaration that it will continue to explore alternative solutions with China that comply with World Trade Organization rules. The Ministry of Commerce of China also indicated that it will continue to engage in constructive dialogue with the European Union to prevent the escalation of trade disputes.

2) Response Strategies of Chinese Car Manufacturers

1) Localization of Production: Chinese car manufacturers may accelerate their localization production layout in Europe to avoid high tariffs. For example, BYD has already established a dealer network in the German market and may further expand its production facilities in Europe in the future.2) Technological Innovation: Chinese automotive companies need to continue to increase their investment in technological innovation and production efficiency to enhance their competitiveness. By improving product quality and reducing costs, Chinese automotive companies can maintain a certain level of market competitiveness in an environment with high tariffs.

3) Diversification of Markets: Chinese automotive companies can consider expanding into other international markets to reduce their dependence on the European market. For example, the demand for electric vehicles is also gradually increasing in regions such as Southeast Asia, the Middle East, and Africa. Chinese automotive companies can seize opportunities in these markets.

The European Union's decision to impose high tariffs on Chinese electric vehicles will protect the EU's automotive industry in the short term, but in the long term, it may weaken its competitiveness. Chinese automotive companies need to respond to this challenge through strategies such as localized production, technological innovation, and market diversification. Both China and the European Union should continue to resolve differences through dialogue to avoid further escalation of trade frictions.