22 Mar 24

Why EU-China relations could lead to higher EV prices

Fleets face the prospect of higher prices for battery electric vehicles, after the European Commission (EC) took a step closer to increasing tariffs on Chinese electric cars.

Earlier this month, the EC instructed customs authorities to start registering EV imports from the People’s Republic of China (PRC). The move sets a date from which Europe could start to impose retrospective tariffs on Chinese EVs, which are already subject to a 10 per cent tariff when imported to Europe.

Anti-subsidy investigation

Last year the EC started an anti-subsidy investigation into Chinese battery-powered cars, and it now says it has: “Sufficient evidence tending to show that imports of the product concerned from the PRC are being subsidised.”

These subsidies: “involve a financial contribution by the Government of the PRC or other regional governments (including public bodies), or by private bodies directed or entrusted by the Government of the PRC, and which confer a benefit to the exporting producers of the product concerned,” said the EC.

It also expressed alarm at the 14% year-on-year rise in imports in the final quarter of 2023, following the announcement of its investigation.

“There is a risk that an increasing number of [European] Union producers will suffer from diminishing sales and reduced production levels if imports continue at the current increased levels at allegedly subsidised prices from the PRC as evidenced so far after the initiation of the investigation. It is clear that that risk will negatively impact employment and the overall performance of Union producers. This would constitute injury which would be difficult to repair,” said the Commission.

China reaction

The China Chamber of Commerce to the EU attributed the surge in Chinese EV imports to the increasing demand for battery-powered cars in Europe. It expressed disappointment both at the EC’s announcement and at the potential for any tariffs to be retroactively applied in future.

“We earnestly hope that the European side will effectively safeguard the legitimate rights and interests of Chinese enterprises and establish a fair, impartial, and non-discriminatory business environment for them. This, in turn, will facilitate our joint contribution to the global low-carbon and green transformation,” said the CCCEU.

European OEMs

Earlier this week (19 March), Luca de Meo, CEO Renault Group, published an open letter warning that the European automotive industry: “is facing an onslaught of electric vehicles form China.”

He acknowledged China’s competitive advantage across the entire EV value chain. China controls 75% of global battery production capacity, 80-90% of materials refining and half of the mines producing rare metals, he said.

“Chinese manufacturers… are a generation ahead in terms of the performance and costs of electric vehicles (range, charging time, charging network, etc.), as well as the software and speed of development of new models (between 1.5 and 2 years versus 3 to 5 years [in Europe]),” said de Meo.

Moreover, with energy costs in Europe twice as high as in China and wage costs 40% higher, an A to C segment car costs EUR 6,000 to EUR 7,000 less to produce in China than in Europe, added de Meo.

“In terms of industry financing, China is thought to be handing out increasingly large subsidies to its manufacturers at an ever increasing pace,” said De Meo.

He called for the creation of green economic zones across the EU that would receive more subsidies and industrial investment.

No tariffs: Mercedes-Benz

But the head of Mercedes-Benz has called for Europe to lower tariffs on EVs imported from China, arguing that increased competition would help Europe’s carmakers produce better cars in the long run.

In an interview with the Financial Times, Ola Källenius, Chairman of the management board of Mercedes-Benz (pictured above), said: “Don’t raise tariffs. I’m a contrarian, I think go the other way around: take the tariffs that we have and reduce them.”

He added that European manufacturers need to beat Chinese competitors with: “better product, better technology, [and] more agility. That is the market economy. Let competition play out.”

And Carlos Tavares, CEO Stellantis, said in an interview last month that European protectionism would be ineffective, because manufacturers would still have to face Chinese competitors in Latin America, the Middle East, Africa and Asia.

Images: Shutterstock_1088532983, Renault and Mercedes-Benz

Authored by: Jonathan Manning