EU could impose tariffs on Chinese electric vehicles as early as May. Rongding Group: "any punitive action by the EU is likely to be too mild to stop Chinese automakers"

The report predicts that the European Commission may also use other tactics to "protect" the European electric vehicle industry. Given the amount of data collected, the report says, the EU could restrict Chinese car imports for "safety" reasons or focus consumer subsidies on buying EU-made models.

The EU's anti-subsidy investigation against Chinese electric vehicles could end with the European Commission imposing temporary tariffs as early as May.

In this regard, the Financial Times on April 29 cited the latest report by the U.S.-based consulting firm Rongding Group according to which in order to "stop" the influx of cheap Chinese electric cars into the EU market, the Union would have to impose much higher tariffs, at least up to 50 percent higher than assumed.

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According to a study by the Rongding Group, "any punitive action by the EU against Chinese electric cars is likely to be too mild to stop Chinese automakers." "We expect the EC to impose tariffs of 15-30%. But even if it were to opt for higher tariffs in this range, some Chinese automakers will still be able to make substantial profits from exporting to Europe, as they enjoy a huge cost advantage," the report said.

According to a report, the scale of OFDI in China's electric vehicle-related industries may set a new record in 2023. Currently, the amount of OFDI in 2023 is US$28.2 billion, down from US$29.7 billion in 2022, but the 2023 figure does not include large-scale projects with an undetermined investment amount, such as the BYD plant in Hungary. According to the report, compared with 2022, China's outward direct investment in electric vehicles in 2023 was more concentrated in midstream battery manufacturing, with related investments as high as US$22.4 billion. According to the report, China's overseas electric vehicle investment is expected to maintain a strong momentum in 2024, but there will be a shift from battery investment to electric vehicle manufacturing in Europe, Latin America and Asia.

The report argues that tariffs of 40-50 percent may be "necessary" to make the European market "unattractive" to Chinese exporters of electric vehicles, with higher tariffs for automakers such as BYD that maintain a vertically integrated supply chain.

For automakers like BYD that maintain a vertically integrated supply chain, the required tariffs could be even higher.

For example, the report states that BYD's Song PLUS Champion Edition sells for about 20,500 euros domestically, while its overseas version, the Seal U, sells for 42,000 euros in Europe, with a huge profit margin for export; according to the Rongding Group's calculations, the 30 percent tariff would still give BYD a 15 percent premium (4,700 euros) on top of its domestic profits for exporting to the European Union. The report also states that even if BYD sold at a reduced price in Europe, many of its other models would still enjoy a higher profit premium.

The report predicts that the European Commission may also use other tactics to "protect" the European electric vehicle industry. Given the amount of data collected, the report says, the EU could restrict Chinese car imports for "safety" reasons or focus consumer subsidies on buying EU-made models.

BYD's expected costs (red) and profits (blue) from selling Seal U in EU country markets Image Credit: Financial Times Below

According to the Financial Times, the EU announced last October that it was launching a countervailing investigation into Chinese electric vehicles for "unfair market-distorting subsidies" after rising imports "threatened" domestic manufacturers who were switching from combustion engine vehicles to electric ones."

According to EU regulations, the investigation must be completed within 13 months of its inception, but the EC can decide whether to impose provisional countervailing duties within nine months of the start of the investigation, i.e. by July at the latest.

The Commission had previously said it would complete its investigation by the end of April and was "evaluating the data and information acquired," the report said. Although formal tariffs must be supported by a majority of EU member states to be implemented in November, some EU officials told the Financial Times that the European Commission could impose interim tariffs as early as May.

However, the German Automotive Industry Association (VDA) spoke out this month against additional EU tariffs on electric car imports from China, saying they could spark a trade war and threaten German jobs, jeopardizing the EU's goal of promoting electric cars and the transition to digitization.