The European automotive market is experiencing significant turbulence as newly imposed tariffs on Chinese electric vehicles (EVs) begin to reshape the landscape. Recent data reveals a substantial 30% drop in Chinese EV exports to Europe, raising concerns about the long-term effects of these trade measures on both the automotive industry and consumers. This decline is viewed by many as a direct result of the European Commission's decision to impose tariffs on Chinese EVs, a move that has sparked considerable debate and uncertainty within the sector. We follow up on our earlier analysis, by examining impact of what looks like a very direct link between tariffs and sales.
A Sharp Decline in Exports
According to the China Chamber of Commerce, Chinese EV exports to the European Union (EU) decreased by 30% in June compared to the same period last year, with only 27,180 units sold. Over the first half of 2024, exports amounted to approximately 222,000 units, down from nearly 260,000 during the same period in 2023—a year-on-year decline of 14.6%. These figures highlight the growing impact of EU tariffs on Chinese manufacturers, who are facing increasing challenges in maintaining their foothold in the European market.
The China Chamber of Commerce attributes this decline not to a decrease in consumer demand but rather to “dealer manoeuvres,” which have temporarily inflated registration numbers. Chinese EVs accounted for only 12.4% of the EU's EV registrations in June, a modest increase of 2% from the previous year. This indicates that while Chinese manufacturers are very much still present in the market, their influence could be impacted by the weight of new trade restrictions.
The Role of Tariffs in the Automotive Sector
The European Commission's decision to impose tariffs on Chinese EVs has been met with mixed reactions. Proponents argue that the tariffs are necessary to protect the EU automotive industry from what they see as unfair competition, driven by substantial state subsidies that allow Chinese manufacturers to keep prices artificially low. Critics, however, warn that these measures could have unintended consequences, including higher costs for consumers and potential retaliatory actions from China.
Valdis Dombrovskis, the European Commission's Vice-President and Trade Commissioner, has expressed confidence that member states will support making these tariffs permanent. “It's clear that member states realise the need to protect the EU's car industry because this risk of injury is there,” Dombrovskis stated, emphasising the rapid growth of Chinese battery electric vehicle market share in Europe, which has risen from 9% to 11% over the past year.
Despite this, the situation remains complex. The Chinese government has filed a complaint with the World Trade Organization (WTO), arguing that the tariffs are unjust and could harm global efforts to combat climate change. Chinese officials have also hinted at possible retaliatory measures, such as imposing tariffs on European goods like pork and spirits, which could further strain trade relations.
The UK’s Unique Position Post-Brexit
Interestingly, the United Kingdom's departure from the EU presents a unique scenario in this context. As the UK is no longer part of the EU, it is not bound by the same trade policies and tariffs. This has led to speculation that Chinese EVs might continue to be more affordable in the UK, given the country's limited local car manufacturing industry and its interest in maintaining access to cheaper imports. The UK's automotive sector, which is heavily reliant on foreign manufacturers, could potentially benefit from the continued availability of low-cost Chinese EVs, even as prices rise elsewhere in Europe.
However, the long-term implications for the UK market remain uncertain. While the lack of tariffs might make Chinese EVs more appealing in the short term, there are concerns that the UK's isolation from broader European trade policies could lead to complications down the line, particularly if the EU and China engage in a prolonged trade dispute.
Potential Consequences of a Fragmented Market
The ongoing tension between the EU and China over EV tariffs highlights broader concerns about the global automotive market's future. As Europe grapples with the challenges of transitioning to greener technologies, the need for affordable, sustainable vehicles is more pressing than ever. However, the imposition of tariffs risks making these technologies more expensive for consumers, potentially slowing down the adoption of EVs across the continent.
In the meantime, Chinese manufacturers are exploring ways to mitigate the impact of these tariffs, including the possibility of establishing production facilities within the EU. By manufacturing vehicles locally, Chinese companies could circumvent the tariffs and maintain their competitive edge in the European market. Nevertheless, this strategy would require significant investment and could take time to implement, leaving the market in a state of flux.
As the situation develops, both the EU and China will need to navigate these trade tensions carefully. While the goal of protecting local industries is understandable, the broader implications for international trade and climate change efforts cannot be ignored. Finding a mutually acceptable solution will be crucial to ensuring that the transition to electric vehicles remains on track, both in Europe and beyond.
In the US, China has looked at bypassing tariffs of 100% by engaging with Brazil and Mexico.
In summary, the imposition of tariffs on Chinese EVs by the European Union has already led to a noticeable decline in imports, raising concerns about the long-term impact on the automotive industry and consumers. While the UK may temporarily benefit from avoiding these tariffs, the broader implications for trade and the global market remain uncertain. As both sides seek to protect their interests, the outcome of this trade dispute will have significant consequences for the future of electric vehicles in Europe.
From our point of view, Brexit was a questionable choice with dubious/hard to see benefits. However, if it means that the UK can continue to see competitively priced EVs from MG, BYD and other quality brands – then that has to be one of the only up-sides. Maybe combined with local battery production and co-owned factories?
Discussion about this post