EU Tariffs on Chinese EVs Spark Tensions

Welcome to the latest edition of the China EV Pulse Newsletter!

In this issue, we explore the approval of EU tariffs on Chinese EVs and the ongoing negotiations to avoid them. Volkswagen CEO Oliver Blume warns of potential retaliation from China and proposes alternatives to the tariffs. We also highlight differing perspectives on the tariffs, including concerns from German automakers and the potential impact on the automotive market.

We also cover reactions from the German Institute for Economic Research (DIW), supporting the tariffs as a necessary measure to protect Europes economy from unfair competition. On the other hand, critics argue that the tariffs could hinder the EU’s climate goals and raise the price of more affordable EVs.

Stay tuned as we analyze the implications of these developments and their impact on the future of EVs in Europe and beyond.

Happy reading!

European Commission Approves Tariffs on Chinese EVs

To block the provisional tariffs on electric vehicles imported from China, member states representing at least 65 percent of the EU's total population would have needed to vote against the measure. In the end, including Germany, the opposition fell short, with only five countries voting against the proposal. As a result, according to multiple media reports, the European Commission is now set to officially implement the tariffs.

These tariffs will affect not only Chinese manufacturers like BYD and Nio, but also European and other global automakers that produce vehicles in China for export to Europe. For joint ventures such as Smart or Mini, which manufacture in China, it will now become significantly more challenging to offer their vehicles at competitive prices in the European market. However, China remains a far larger market for electric vehicles than Europe.

The tariffs will be calculated individually for each manufacturer, aiming to offset the extensive subsidies the Chinese government provides to locally produced electric vehicles. On average, the tariff increase stands at around 21 percent, though it ranges from 7.8 percent for Tesla to as much as 35.3 percent for SAIC, the parent company of the popular MG Motor brand in Germany.

The German Association of the Automotive Industry (VDA) warns that these tariffs could further accelerate the deglobalization of the economy. Instead of imposing the tariffs as planned, the VDA believes the European Commission should enter into direct negotiations with China to find a resolution. China has already announced strong opposition to the tariffs, and many experts fear the onset of a prolonged trade war. Automakers are concerned that this could result in reduced access to crucial raw materials and technology.

Manfred Weber, a leading CSU politician in the European Parliament, defended the tariffs, pointing out that many other parts of the world are already imposing similar duties on Chinese electric vehicles. In the U.S., these tariffs even reach 100 percent. While some prominent German politicians have recently urged for the avoidance of tariffs, perspectives on the issue clearly differ across EU countries. Meanwhile, many Chinese automakers are already exploring production options within Europe to sidestep the tariffs.

German Auto Industry Fears China Retaliation Over EU Tariffs

EU member states approved tariffs on electric vehicles imported from China, but negotiations are still underway to avoid their implementation. Volkswagen CEO Oliver Blume fears retaliation from China and advocates for a compromise. He suggested in an interview with Bild am Sonntag that Chinese automakers investing in Europe and creating local jobs should receive tariff benefits.

Blume warned that tariffs could severely harm the German auto industry due to its reliance on exports to China. "We would face significant disadvantages in the Chinese market. Many jobs in Germany depend on this trade," he said, emphasizing the need for a fair solution that doesn’t provoke a trade conflict.

When asked whether Chinese automakers should be allowed to produce EVs in Europe without tariffs if they create jobs, Blume agreed this could be a viable approach. Some Chinese manufacturers, like Leapmotor in Poland and BYD in Hungary, are already setting up production in Europe.

In the EU vote, ten countries supported the tariffs, while Germany and four others opposed them. Major German automakers like VW, BMW, and Mercedes-Benz, who generate about a third of their revenue in China, also stand against the measure.

Industry Concerns and Economic Risks

The German Association of the Automotive Industry (ZDK) views the tariffs as counterproductive. Thomas Peckruhn, Vice President of ZDK, warned that the increased costs would hurt consumers and further weaken already sluggish demand. He also highlighted the potential for Chinese retaliation, which could disrupt exports and harm the German economy.

Reducing Dependence on China

Marcel Fratzscher, President of the German Institute for Economic Research (DIW Berlin), supported the tariffs, calling them necessary to protect Europe’s economy from being overwhelmed by subsidized Chinese products. He criticized the German auto industry for its resistance, arguing that its heavy reliance on China has made Germany economically vulnerable.

However, Fratzscher also warned that the tariffs might not be enough to curb the growing influence of Chinese EV manufacturers in Europe. He advised the EU to coordinate closely with the U.S. to address the competitive challenge posed by China.

Baden-Württemberg's Transport Minister Winfried Hermann (Green Party) criticized the European auto industry for its lack of affordable small electric cars. He argued that the tariffs could make Chinese EVs too expensive, slowing the transition to e-mobility and undermining the EU’s climate goals.

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Sebastian & team | China EV Pulse

📸 _{Image Credits (in order of appearance): Robert Way / Shutterstock - Bumble Dee / Shutterstock - Volkswagen - shutterstock / 1204164946}