BYD and Chinese EV Automakers Face Huge EU Tariffs

Chinese automakers, particularly BYD, are starting to feel the pressure from newly imposed tariffs in the European Union (EU). These tariffs, rooted in the EU's competition policy, aim to protect the internal market from perceived unfair trade practices, but they are already leading to notable shifts in sales dynamics. While the tariffs are designed to maintain fair competition, the economic ramifications for Chinese electric vehicle (EV) manufacturers are significant.

EU's Revised Tariffs and Their Impact

Recently, the EU adjusted its proposed import duties for Chinese cars, which will be subject to a final vote in October. The revised tariffs, if approved by at least 15 of the 27 EU countries, will be officially enforced. Among the beneficiaries of these changes is Tesla, which will see its tariffs on China-built vehicles drop from 20.8% to just 9%.

Despite these revisions, the provisional tariffs implemented since July 5th have already impacted Chinese car sales across Europe. For example, SAIC, which markets vehicles under the MG brand, saw a dramatic 45% drop in sales in July compared to the previous month.

Why the EU Is Raising Tariffs

The EU’s decision to increase tariffs is largely driven by the need to control the anticipated influx of low-cost EVs from China. These higher import tariffs, initially proposed in early July, are part of a broader strategy to ensure that domestic automakers can compete on a level playing field against heavily subsidized Chinese manufacturers. The EU initially considered imposing additional duties as high as 37.6% on top of the existing 10% import tax for Chinese cars, but this has since been adjusted to a maximum of 36.3%.

The tariff rates will vary depending on the level of state subsidies received by each Chinese automaker. Tesla, which benefits from fewer subsidies compared to its Chinese competitors, will enjoy a reduced tariff rate of 9%, while other manufacturers will face duties ranging from 17% to 36.3%.

Specific Tariffs for Key Players

BYD, one of China’s leading automakers, will be subject to a 17% tariff, while SAIC will face the full 36.3%. Volvo’s parent company, Geely, will see its imports hit with a 19.3% duty. Notably, if a Chinese automaker has a joint venture with a European firm, the maximum tariff they can face is capped at 21.3%, according to Bloomberg.

The Early Effects of Tariffs

The initial impact of these tariffs has already been felt. SAIC reported a 45% drop in sales in July, although this decline is part of a broader trend that saw a 36% decrease in EV sales across the EU’s 16 largest markets. These changes are also affecting the EU's budget, as shifts in trade dynamics influence revenue and resource allocation within the EU governance framework.

However, not all Chinese automakers are struggling. BYD has reported a 20% increase in EU sales so far in 2024 compared to the same period in 2023. Yet, this growth could be at risk if BYD is forced to raise prices due to the higher tariffs, potentially diminishing the appeal of its vehicles to European consumers.

Pros and Cons of Chinese EVs in the EU Market

Chinese EVs, including those from BYD, offer a mix of pros and cons for European consumers.

Pros of Chinese EV Cars:

• Cost-Effectiveness: Chinese EVs are often more affordable than their European counterparts, largely due to lower manufacturing costs.

• Advanced Technology: Many Chinese EVs come equipped with cutting-edge technology and features that appeal to tech-savvy consumers.

• Diverse Options: The range of models and configurations available from Chinese manufacturers provides European buyers with more choices.

Cons of Chinese EV Cars:

• Tariff Impact: The new EU tariffs could increase the cost of Chinese EVs, reducing their price competitiveness.

• Perceived Quality: Some European consumers may have reservations about the long-term reliability and build quality of Chinese-made vehicles.

• Market Competition: The influx of Chinese EVs may strain the local European automotive industry, leading to potential job losses and economic disruption.

Future Strategies for Chinese Automakers

To counter these challenges, Chinese automakers may need to explore new strategies. One viable option is to establish manufacturing facilities within Europe, particularly in central and eastern regions. BYD is already making significant progress in this area, with a factory under construction in Szeged, Hungary, and plans for another in Turkey. Other manufacturers, like Dongfeng, are also exploring opportunities to set up plants in Europe, with Italy being a potential location.

Alternatively, some manufacturers might choose to absorb the additional costs imposed by the tariffs rather than passing them on to consumers, thus maintaining competitive pricing in the European market, even if it means reduced profit margins.

Looking Ahead - what is next for EV Cars?

The decision on whether these tariffs will be fully implemented is expected in October and remains a contentious issue among EU member states. Countries like France, Spain, and Italy are in favor, while Germany, Sweden, and Finland have abstained from voting. The final outcome will have far-reaching implications for both Chinese and European automakers, potentially reshaping the competitive landscape in the EU’s automotive market.

As Chinese automakers navigate these new regulatory hurdles, their ability to adapt will be crucial for sustaining growth and maintaining competitiveness in one of the world’s most lucrative markets. Whether through local production or strategic pricing adjustments, the path forward will require careful planning and execution.