“I think you can actually imagine this will play out quite well for BYD,” says Ilaria Mazzocco, a senior researcher at the Center for Strategic and International Studies. “And also, they will have less competition from other Chinese automakers.” BYD is known for its ability to control production costsso you can still sell your cars at a relatively low price. For other Chinese brands, however, the tariffs could mean they now have to set their prices higher and compete head-on with European models.
Chinese automakers are not the only ones affected. Tesla, with half of its cars made at the Shanghai Gigafactory in China, will receive the smallest tariff, 7.8 percent, after the company requested an adjustment based on the actual subsidies it receives in China. By contrast, Volkswagen and other European brands that produce cars in China can get around 21 percent.
One way for Chinese brands to avoid tariffs is to establish factories in Europe and move production here, like what Volvo has done for years producing in Sweden despite having been acquired by the Chinese company Geely.
These decisions are likely to be welcomed by some European countries as, in theory, they would contribute significantly to local employment and green economic growth. In fact, many Chinese companies have announced plans to move part of their supply chain to countries such as Spain, Hungary and Poland, although Mazzocco warns that these announcements should be taken with a grain of salt until factories actually start producing.
Alternative solutions
However, despite the outcome of the vote, the approved rates may not be final. On Monday, a European Commission official said the commission is willing to continue negotiations with China even after the vote on tariffs. If they can agree on other solutions to the problem of unfair competition (for example, establishing import quotas or a minimum price for Chinese electric vehicles), the tariff could be revised.
China has filed a complaint to the World Trade Organization about EU tariffs, and the WTO could also ask the EU to change or withdraw these tariffs if it finds them unacceptable.
“What the commission really wants to do is tell its members: ‘Look, we have to look serious. We can negotiate later,’” says Alicia García-Herrero, chief Asia Pacific economist at French investment bank Natixis. Had member states rejected the commission’s proposed tariffs, it would have shown that Europe is divided and powerless against the influx of Chinese brands. But now that the tariffs have been approved, Europe has more leverage to negotiate a better trade deal with China.
Not all alternative outcomes would affect Chinese companies in the same way. The worst situation could be, for example, an import quota, says García-Herrero. Making a profit from tariffs is challenging, but still possible. “But a quota would reduce the number of exports, so it is not in China’s interest,” he says.
On the other hand, setting a floor price only for imported EVs may not be a bad thing after all. It provides automakers with a higher profit margin and forces them to compete on the basis of better quality and service. “I think Chinese automakers feel pretty confident in their quality,” says Mazzocco. And it may even be good news for Chinese EV brands that focus on the high-end luxury car market, such as BYD’s Yangwang sub-brand, which makes luxury SUVs that can cross lakes in an emergency.