Chinese businessmen are hoping that a round of discussions would lessen the shock to the largest electric car sector in the world following the European Commission’s anticipated action to boost tariffs on Chinese automobiles.

For Chinese electric vehicle manufacturers, the preliminary tariffs, which are anticipated to be revealed by June 5, would be a sticker shock amounting to billions of dollars in additional expenses.

However, there are beneficial reasons for China and Europe to desire to reach an agreement.

To combat shrinking margins at home, China’s EV sector requires successful exports to the third-largest economy in the world, while German automakers want access to China’s car market and EV collaborations to reduce costs.

Based on trade statistics from 2023, China’s EV exporters will lose around $1 billion for every 10% increase in European Union tariffs on top of the current 10% duty. This year, as shipments of electric vehicles from China to Europe increase, that cost will rise.

Previous EU investigations into Chinese imports of various items have led to additional tariffs for firms who cooperate with the probe, ranging from around 9% to 26%. Analysts estimate that range for EV tariffs. The duties might be applied retrospectively for the three previous months, but they would be enforced starting in early July.

China has indicated that it is preparing substitutes for the next negotiations. After four months, the EU’s interim responsibilities may be contested or even abandoned if a sufficient number of EU nations object.

A trade association called the China Chamber of Commerce to the EU stated last week that Beijing was thinking of raising import duties on large-engine cars to 25%. Additionally, according to two persons with knowledge of the situation, China has suggested cutting duties on EU vehicle imports from 15% to 10% from current levels.

BYD, SAIC, and Geely have received warnings from the European Commission for not providing adequate information in response to its probe into subsidies.

This may pave the way for increased tariffs on those businesses, which will serve as a model for levies imposed on the remainder of China’s sector.

The trade association said that the study had been faulty from the beginning and had requested data that Chinese automakers were unable to supply. According to one individual with knowledge of the investigation, that included information on vendors, such as CATL, who were not involved in the inquiry. A request for comment from CATL was not immediately answered.

The trade association stated in a statement that there could be a chance for negotiations. “The ball may be on the European side,” it said.

Analysts anticipate that both parties will hunt for a bargain.

“I expect the Chinese side to, and we’re already seeing this, use a combination of carrots and sticks to convince some key member states to push back against the Commission,” said Noah Barkin, a Rhodium Group senior adviser.

The US had earlier threatened to “demolish most other car companies” with its fourfold increase in taxes on Chinese electric vehicles, which Elon Musk, the CEO of Tesla, strongly objected to. This was the reason behind the European decision. The potential of increased EU tariffs also affects Tesla, the biggest electric vehicle exporter from China.

To get EVs onto the market more swiftly and affordably, European automakers have partnered with more recent Chinese EV manufacturers. More than $5 billion was promised by Volkswagen and BMW in April to increase R&D and manufacturing in China. According to trade data, about 29% of German automakers’ vehicles were sold in China in 2023.

The most significant international market for Chinese EV manufacturers is Europe. EV manufacturers, like BYD, are able to sell vehicles in Europe for more than double the amount they charge in China due to fierce competition that is pressuring margins in China. Analysts think it gives some wiggle left for more levies.

Investors from China are also present in the European EV market. This month, Xpeng joined the French market. Nio’s founder, William Li, predicted the Chinese electric vehicle manufacturer will lead the way in Europe during the show’s launch last week in Amsterdam.

Building an electric vehicle facility in Hungary, BYD is planning another plant in Europe. With a partnership with EV Motors of Spain, Chery Auto, the biggest manufacturer in China based on export volume, will establish its first facility in Europe in Catalonia. China’s second-largest car exporter, state-owned SAIC, is looking to open its first plant in Europe.

The biggest battery manufacturer in the world, CATL, has increased output in Europe. France is developing its “battery valley” with the assistance of other Chinese battery providers.

Chancellor Olaf Scholz of Germany stated, “It would be better for Europeans to press China on lowering its auto import tariffs than to start a trade dispute,” during his April visit to China.

The CEOs of BMW and Mercedes-Benz accompanied Scholz on his visit to China, voicing opposition to trade restrictions and asserting that German automakers could withstand competition from China.

A joint venture between Stellantis and Leapmotor demonstrates how established automakers may change course depending on whether China poses a danger or an opportunity. Through this cooperation, the Franco-Italian carmaker will sell the cars made by the Chinese EV producer outside.

Prior to joining up with Leapmotor, Carlos Tavares, CEO of Stellantis, advocated for increased tariffs on Chinese electric vehicles. This month, he described tariffs as “a major trap”.

“We will try to be Chinese ourselves,” Tavares said in Munich. “Instead of being purely defensive vis-à-vis the Chinese offensive, we want to be part of the Chinese offensive.”

(Adapted from TheMorningStar.net)

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