Recently, the European Commission issued an emergency notice planning to conduct customs registration of pure electric vehicles imported from China.
This is part of the EU’s anti-subsidy investigation into Chinese electric vehicles. If the final investigation determines that Chinese trams have received unfair subsidies, the EU may impose retroactive tariffs on these imported vehicles.
This policy has attracted widespread attention in Europe and China. The European Union Chamber of Commerce in China expressed disappointment and pointed out that China’s increase in electric vehicle imports reflects growing demand for electric vehicles in Europe.
Mercedes-Benz CEO Ola Källenius said China’s desire to export electric cars to Europe was a “natural development of competition.” In the long run, increased competition will help European automakers produce better cars. He opposes raising import tariffs and believes that protectionism is “on the wrong track.” Previously, German automakers such as BMW and Volkswagen believed that the EU’s investigation and additional tariffs would harm their interests.
So why does the EU have such a customs registration? If additional tariffs are finally possible, how will Chinese car companies respond?
- Chinese cars are heading to Europe
In the regulatory documents released this time, the European Commission stated that they have sufficient evidence to show that Chinese electric vehicles have received subsidies. Since the EU officially launched the investigation in October last year, China’s electric vehicle exports to the EU have increased by 14% year-on-year.
The European Commission said exports from China constituted a “critical situation” through “large imports in a relatively short period of time”.
Last year, Chinese brands sold more than 350,000 cars and SUVs in Europe, mostly electric vehicles. Among them, the import volume from October 2023 to January 2024 was 177,800 vehicles. Compared with the survey period (October 2022 to September 2023), the average monthly import volume increased by 11%. Compared with January 2023, the average monthly import volume has increased by 14%.
The European Commission said that if Chinese imports continue to grow at this accelerated rate before the investigation is concluded, EU producers may suffer irreparable losses.
However, judging from the data, China’s new energy vehicle exports to Europe have begun to weaken.
Cui Dongshu, secretary-general of the National Passenger Car Market Information Joint Association, said that in November 2023, China’s European exports of new energy vehicles declined significantly. France’s single-month new energy vehicle exports fell by 73% year-on-year, and Spain’s dropped by 72%.
There are several reasons behind this phenomenon: First, European countries such as Germany, the United Kingdom, and the Netherlands have recently announced tightening subsidy policies for new energy vehicles. In particular, Germany ended its electric vehicle subsidy program a year early last December, which was originally planned to be implemented by the end of 2024. Regarding this move, a spokesman for the German Finance Ministry emphasized that the German government “had no choice due to insufficient funds.”
It is also worth noting that in August last year, the European Union issued a new “Battery and Waste Battery Regulation”. Compared with the 2006 version, this regulation mainly provides unified supervision over the entire life cycle of batteries, including power batteries and energy storage batteries. Its core regulatory content covers aspects such as carbon footprint and recycling, which means that the threshold for car companies to enter the European market has been significantly increased.
In fact, starting from the beginning of 2023, signs of trade protection in the European new energy vehicle market are vaguely emerging:
In June 2023, France plans to push the EU to launch anti-dumping and countervailing investigations against Chinese electric vehicles;
In September 2023, European Commission President von der Leyen announced the launch of a countervailing investigation into Chinese electric vehicles;
On October 4, 2023, the EU issued a communiqué officially launching a countervailing investigation into China’s electric vehicles;
On October 25, the European Commission announced that it had identified BYD, SAIC Motor and Geely as target companies for anti-subsidy investigations through sampling selection;
In March 2024, the EU plans to conduct customs registration of China Electric Vehicles.
According to the investigation process, the EU will announce whether to impose temporary tariffs on Chinese electric vehicles in July 2024, and announce the final investigation results in October to November.
The best-selling Chinese car in Europe – MG 4 | Image source: MG official Weibo
Although there are still several months until the results are announced, judging from current external feedback, the EU is increasingly likely to impose additional tariffs. UBS said in a report that the European Commission has not revealed how many tariffs it may impose on Chinese imports, but any decision must weigh the possibility of retaliation.
The current tariff for Chinese cars and SUVs entering the EU is 10%.
In this EU investigation of Chinese electric vehicles, it is worth noting that the EU did not launch an anti-dumping investigation at the same time, but focused on the countervailing investigation. This is critical because anti-dumping duties and countervailing duties are two different taxes. In past experience, the EU’s investigation results on Chinese photovoltaic products show that countervailing duties are usually much lower than anti-dumping duties.
- How to “localize” Chinese cars?
At present, although mature markets such as Europe and the United States have large sales, they are facing increasing pressure from trade protectionism. In addition to the European Union, the United States has recently launched an investigation into intelligent connected vehicles from China on the grounds of national security.
According to reports, some U.S. senators have even proposed a proposal to increase the basic tariff rate from the current 2.5% to 100%, which means that tariffs on Chinese electric vehicles may increase from the current 27.5% to 125%. The bill also proposes to impose 100% tariffs on cars produced by Chinese automakers that are assembled in Mexico and exported to the United States.
This situation is nothing new. With the rapid growth of China’s automobile exports, protectionist forces in international trade are bound to react. For European and American governments, the automobile industry is related to a large number of jobs and votes. For example, 14 million people in Europe are directly or indirectly engaged in the automobile manufacturing industry, accounting for 6.1% of the EU’s employed population.
Looking back at Japan 40 years ago, it also encountered a similar situation. In the 1980s, American automakers and unemployed auto workers boycotted Japanese cars and even launched a series of protests.
In order to reduce the impact of trade frictions, Japanese car companies have adopted a strategy of investing in overseas markets and setting up local production bases as much as possible. Especially after the Plaza Accord signed in 1985, Japan increased its efforts to invest and produce in countries where the market is located.
According to data from the Japan Automobile Manufacturers Association, since 2007, the overseas production of Japanese car companies has exceeded domestic production.
Chinese car companies are also moving in a similar direction. At the end of 2023, BYD released information that after receiving billions of euros of investment from the Hungarian government, it planned to build its first new energy vehicle production base in Hungary. This is also the first passenger car production base built by a Chinese car company in Europe. In addition to BYD, SAIC MG, Changan Automobile, Great Wall Motors, etc. are also planning to build factories in Europe, and some brands have already started site selection work.
In addition to traditional car companies, new car-making forces are also taking active actions. NIO’s European energy plant in Hungary has been put into operation in September 2023, and Nezha Automobile is also considering building a factory in Europe; Leapmotor has cooperated with Stellantis to use the latter’s dealer channels to sell Leapmotor, which is expected to be completed in 2024 Deliveries will begin in Europe in the third quarter of this year.
However, Chinese car companies are investing in localization in Europe and it is expected that mass production of products will not be achieved until after 2025. It is difficult to change the current situation of European car exports in the short term.
At the same time, China’s auto parts industry is also “going global.” For example, power battery manufacturers such as CATL have announced the establishment of production bases in Germany, Spain and other countries. In addition, Tesla announced that it will build a factory in Nuevo Leon, Mexico, and Tesla’s Chinese partners are also considering building a factory in Mexico or have already made plans.
In the face of increasingly popular trade protectionism, how to truly globalize the automotive industry has become a more important issue. This means that Chinese car companies need to change from a single vehicle export model to a variety of models, including building factories overseas, acquiring overseas brands, and even introducing entire Chinese brands to the international market.
Going to sea has never been easy, and it may be even harder in the future. But for Chinese car companies, going overseas is no longer an option, but a necessity.
