China urges EU to reverse ‘wrong direction’ on EV tariffs

BEIJING hopes the European Union will reconsider tariffs on Chinese electric vehicles and stop going further in the “wrong direction” to shield its auto industry from competition, according to state news agency Xinhua.

The reaction from China and others embroiled in the dispute, including European and Chinese carmakers, points to clear opposition to the EU decision and an eagerness to de-escalate the situation.

Industry insiders say both Europe and China have reasons for wanting to strike a deal in the months ahead to avoid the addition of billions of dollars in new costs for Chinese electric (EV) carmakers, as the EU process allows for review.

China said it would take measures to safeguard its interests after the European Commission announced on Wednesday it would impose extra duties of up to 38.1 per cent on imported Chinese electric cars from July.

“In light of their economic structure and sheer size, China and the EU are best served by teaming up on major economic and trade issues,” Xinhua said in a commentary.

Brussels seemed to have left some room for the two sides to continue their consultations to find a solution and avoid the worst scenario, the Xinhua commentary added.

“It is hoped the EU will make some serious reconsideration and stop going further in the wrong direction,” it said.

Beijing has rejected the EU and US argument that China’s EV industry is running at a degree of overcapacity that threatens overseas carmakers through subsidised exports. It says tariffs will slow the uptake of electric vehicles, endanger climate-change goals and push costs higher for consumers.

The EU move comes less than a month after Washington revealed plans to quadruple duties for Chinese EVs to 100 per cent.

Brussels said it also would combat Chinese subsidies with additional tariffs ranging from 17.4 per cent for BYD to 38.1 per cent for SAIC, on top of the standard 10 per cent car duty. That takes the highest overall rate to nearly 50 per cent.

State-owned SAIC, which counts on joint ventures with Volkswagen and General Motors to be China’s largest carmaker, said on Thursday it was deeply concerned by the tariffs.

SAIC has been China’s biggest carmaker for nearly two decades but its sales have come under pressure, and it has been working to reduce headcount, Reuters has reported.

The EU has made clear that European regulators would view loans from Chinese state-owned banks and government ownership as subsidies subject to additional tariffs.

Chinese EV shares mixed

China’s vehicle industry, a mix of state-owned and private firms, has cost advantages over foreign competitors in part because of government subsidies and the nation’s dominance of battery-minerals refining, analysts say.

But the hypercompetition in China’s EV market, the world’s largest, has also driven companies to innovate in ways that have brought down costs.

The EU provisional duties are set to apply by Jul 4, with the investigation due to continue until Nov 2, when definitive duties, typically for five years, could be imposed.

Chinese EV maker stocks mostly shrugged off the news, which was expected. The Hong Kong-listed shares of BYD surged more than 7 per cent in early trade, on track for their biggest one-day percentage gain since November 2022.

“The EU tariff hike result is slightly positive for BYD versus our previous tariff expectation of 30 per cent, which improves BYD’s export growth visibility into Q2/Q3 2024,” Citi said in a research note.

Geely Auto climbed more than 3 per cent, Leap Motor surged 3 per cent and Great Wall Motor’s Hong Kong shares eased 1.2 per cent. In Shanghai, shares of SAIC Motor fell 2.3 per cent.

Joe Mazur, senior analyst at research consultancy Trivium China, said Chinese EV makers would be forced to pass along some of the cost increases to consumers.

“But it’s by no means a death blow to the Chinese EV industry in Europe,” he said.

Chinese carmakers have charged more for exports than they have in their home market, offering some protection from the tariffs. BYD, for example, charges more than double – sometimes nearly treble – the price it gets for three key models in China.

While European carmakers are being challenged by an influx of lower-cost EVs from Chinese rivals, there is virtually no support for tariffs from the continent’s car industry.

Some of the biggest opponents include Europe’s largest carmakers such as BMW, Volkswagen, Stellantis and Mercedes Benz.

German carmakers in particular are heavily dependent on sales in China and fear retribution from Beijing. European vehicle firms also import their own Chinese-made vehicles.

Shares in some of Europe’s biggest carmakers – which make a big portion of their sales in China – fell on Wednesday due to fears of Chinese retaliation. REUTERS