A report indicates that the punitive tariffs being considered by the European Union may not be sufficient to deter the dumping of cheap electric cars from China. Researchers believe that a tariff of around 50% would be needed to stem the flow of Chinese electric cars into the EU.
The EU’s anti-subsidy investigation into Chinese electric cars is expected to conclude in the next few weeks. Researchers at the Rhodium Group have warned that the current punitive measures may be too lenient.
The report states, “We expect the European Commission to impose tariffs ranging from 15% to 30%. But even with such high tariffs, some Chinese manufacturers can still make substantial profits on cars exported to Europe due to their significant cost advantages.”
It suggests that “tariffs of 40% to 50% are necessary to make Chinese electric car exporters unattractive to the European market, and even higher for vertically integrated manufacturers like BYD.”
BYD’s Seal U, priced at 20,500 euros in China, sells for 42,000 euros in the EU. Estimated profits are 1,300 euros and 14,300 euros respectively, providing a strong incentive for export.
Imported cars already pay a 10% EU tariff, equivalent to about 2,100 euros per vehicle.
The Rhodium Group’s report states, “Based on our calculations, even with a 30% tariff, the company’s profits in the EU are still 15% higher than in China (about 4,700 euros), making exports to Europe very attractive.”
The report points out that BYD could even lower prices to achieve its goal of capturing 5% of the EU market by 2025 and 10% by 2030.
Massive investments in production capacity mean that Chinese car manufacturers must export to get sufficient returns.
By 2026, BYD’s annual production capacity for electric cars in China is estimated to increase from 2.9 million vehicles at the end of 2023 to 6.6 million vehicles. It is evident that this excess production capacity cannot be absorbed domestically in China.
Following the surge in imports threatening EU carmakers, Brussels announced an investigation in October last year.
The EU’s imports of Chinese electric cars (including foreign manufacturers with plants in China) have increased from $1.6 billion in 2020 to $11.5 billion in 2023. During this period, the market share of Chinese brands has more than quadrupled, reaching 8% last year.
It is estimated that this year, China’s market share in electric cars will reach 11%, rising to 20% by 2027.
German and American carmakers that produce in China and sell in the EU will also be impacted by tariffs. The Rhodium Group believes that a 15% tariff could wipe out Tesla’s profits from exporting to the EU from China.
(This article references relevant reports from the Financial Times)