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Employees work on an electric vehicle production line in Nanchang, Jiangxi province, China. The EU is set to confirm extra duties of up to 37.6% on Chinese-built electric vehicles. File photo: KEVIN KROLICKI/REUTERS
Employees work on an electric vehicle production line in Nanchang, Jiangxi province, China. The EU is set to confirm extra duties of up to 37.6% on Chinese-built electric vehicles. File photo: KEVIN KROLICKI/REUTERS

Shanghai/Beijing — With the clock ticking for the European Commission to impose provisional tariffs on electric vehicles (EVs) made in China, manufacturers are bracing for billions of dollars in new costs, which analysts expect will slow their European expansion.

Despite last-ditch efforts to strike a deal, the bloc is set to confirm on Thursday extra duties of up to 37.6% aimed at preventing a flood of subsidised, Chinese-built EVs into the European market.

“The Chinese EV brands’ march into Europe will continue” said Lei Xing, founder of consultancy AutoXing. “It’s like going from 80km/h to 60km/h or even slower, but it’s not going to stop.”

China and the European Commission have been in negotiations since last week over the curbs, which Beijing and some European vehicle makers want scrapped. Beijing rejects accusations that Chinese EVs are unfairly subsidised.

BYD, the world’s largest EV maker, faces the lowest tariff hike of 17.4% on top of the current 10% tariff. State-owned SAIC’s MG Motors, the most popular Chinese-branded EV in Europe, faces the highest hike.

“For someone like BYD, 17.4%, they can absorb it,” Xing said. “It’s a slight bump on the road. But for MG — for SAIC Motor — it’s a major bump.”

EU countries are wavering over whether to back additional tariffs on Chinese-built electric vehicles, highlighting the bloc’s challenge in building support for its largest trade case yet as Beijing threatens wide-ranging retaliation.

The tariffs, which are set to be finalised in November, would be blocked if a “qualified majority” of at least 15 countries representing 65% of the EU population votes against them.

Industry insiders say both Europe and China have reasons to push for a deal to avoid the addition of billions of dollars in new costs for Chinese EV makers.

“I think the incentive right now that Europe is inviting to occur is for Chinese companies to consider avoiding the tariff by locating some of their productive capacities closer to the European region,” said Bill Russo, founder and CEO of consultancy Automobility.

“The immediate impact is it will force companies that are using made-in-China exports as their business model to reconsider that strategy and to localise more or to push some of that capacity outside China in the direction of the markets that they’re serving.”

Chinese carmakers, which command a 30% or more cost edge over European rivals, took 19% of Europe’s EV market last year, up from 16% in 2022, according to research firm Rhodium Group.

Some are already shifting manufacturing to Europe. Chery Auto, China’s largest carmaker by export volume, has signed a joint venture with Spain’s EV Motors to open its first European manufacturing site in Catalonia. BYD, the biggest rival to Tesla, is building its first European EV production base in Hungary.

However, there may not be a strong business case for some Chinese manufacturers to set up production in Europe, given their cheaper, more efficient supply chains back home and sales volumes too low to justify the cost of a factory.

The simplest response for Chinese carmakers is to increase the European price for their EVs, said Yale Zhang, founder of Shanghai-based Automotive Foresight. “If you don’t raise the price, I’m afraid the profit will be negative,” Zhang said, referring to producers that are set to be hit with the highest tariff. “You have to reposition the pricing, and that will definitely impact sales,” he said.

Reuters

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