EV tariffs + EU-China policy at an inflection point + Exports to China

In this issue of MERICS Europe China 360°, we cover the following topics:

• One year on from EU’s EV tariffs: Results and strategic choices ahead
• EU’s China policy is at an inflection point
• Soapbox-MERICS Data Highlight: EU market reality tilts transatlantic

One year on from EU’s EV tariffs: Results and strategic choices ahead

By Jacob Gunter and Grzegorz Stec

The EU is currently evaluating the effectiveness of its tariffs on Chinese-made electric vehicles (EVs) since their introduction a year ago. The countervailing tariffs of 17 to 35.3 percent, which were based on investigations into several EV makers in China by the Commission, came on top of the EU’s standard ten percent car import duty. Just how the EU measures the tariffs’ effectiveness depends on their intended purpose. Were they meant only to address price distortions from subsidies or to decrease or even stop the flow of EVs from China? Or were they meant to drive Chinese automakers to invest in production sites in the EU – or a combination of all of those?

The tariffs have had mixed results

If measuring the impact on price distortions, the result is mixed but leans positive. The Commission’s investigation was exhaustive and certainly enabled it to set tariffs measured to offset the subsidies China-based EV makers have enjoyed. However, they were based on specific support measures and could not take into account the price wars driven by overcapacity which have shaped EV-makers’ strategy to accept razor thin margins – and even losses. Their willingness to accept margins in export markets that are very low but still higher than those in China has created global price distortions.

If measuring effectiveness by stemming or even stopping the flow of China-made EVs (which is not a stated goal, but which some observers use as a metric of success), the result is a profound failure. Chinese EV brands doubled their market share in the EU in the last year, in part by quadrupling exports of plug-in hybrids (PHEVs) which circumvent the tariffs. That is happening even as European car exports to China continue to decline. 

If measuring effectiveness by Chinese investments in EU production sites to avoid tariffs, the situation is difficult to judge. Chinese EV makers have announced several planned investments and production lines in the EU since the tariffs: BYD is modestly expanding an electric bus plant in Hungary, XPENG is licensing production of several models in Austria, and Chery invested in a large research and development (R&D) center attached to its existing investment in Spain. 

However, it is difficult to determine the weight of the tariffs on those corporate decisions. Chinese EV makers that may have been considering investments in the EU may also have been deterred by Beijing’s order in fall 2024 to pause investments in member states that supported the EV tariffs. They may have interpreted it as Beijing discouraging investments generally in Europe. Now that Beijing knows EU member states’ would like more Chinese EV investments, China may allow or even encourage its EV makers to invest in those ”friendlier” member states.

China-made EVs will continue to expand in the EU market

China is expected to significantly increase its total car production and exports in the coming years. The China Passenger Car Association (CPCA) announced in September that it expects China to export as many as 10 million cars by 2030. Not all of those will be bound for the EU, but there are hard limits as to where sufficient numbers of customers can be found, especially as a market needs enough consumers who can afford such cars in the first place. 

• The US holds little hope for China’s EV makers, who correctly anticipated both former President Joe Biden’s  and Donald Trump’s measures on Chinese EVs.
• Japan and South Korea lack restrictions, but their consumers overwhelmingly prefer local brands over foreign ones, Chinese or otherwise.
• Many BRICS members have raised barriers on Chinese cars, including Russia through new “recycling” fees, and India which is set to only permit imports once companies have invested enough in the market.