EU prepares ‘possible retroactive tariffs’ on Chinese EV imports

According to a document published on Tuesday and cited by the Reuters news agency, the EU Commission says it has sufficient evidence ‘tending’ to show Chinese EVs were being subsidized, and it will start ‘customs registrations’ on Thursday to prepare for possible retroactive tariffs.

That means that import tariffs could be imposed retrospectively if the EU Commission’s investigation, which started in September 2023, provides tangible evidence of unfair state support. The probe is intended to be concluded by November 2024, but the EU could already impose provisional duties in July. This might create uncertainty for people ordering a Chinese-made car now.

Difficult to repair arrear

Reuters adds that the Commission argues that “EU producers could suffer harm, which would be difficult to repair if Chinese imports continued at this accelerated rate before the conclusion of the investigation.” According to the EU, the import of Chinese cars has increased by 14% year-on-year since October 2023.

In China, the Chamber of Commerce said it was disappointed by the EU’s new move and that the surge of imports is pushed by increasing European demand for electric vehicles. These tend to be cheaper, although they are already subject to import taxes in Europe like other ‘foreign’ cars.

EU’s own initiative

The investigation on cars ‘made in China’ was not the result of a formal complaint by the European car industry but was launched by the Commission on its own initiative (ex officio). Although there reportedly was a lot of pressure initially from some French automotive players, others, like Stellantis boss Tavares or the German carmakers, weren’t pushing that far, fearing for their own businesses in the world’s biggest car market, China.

Even Renault CEO Luca de Meo ventilated some doubts just two weeks ago. “It is my honest opinion that we don’t have to fight the Chinese; we can also make deals with them,” de Meo argued. “We did it already with Geely and Envision, and we have to think of how China can help us to decarbonize Europe quicker. And where cost is concerned, with our new R5 Electric, we master them and can be competitive, also with the Chinese.”

‘Huge state subsidies’

Still, the EU Commission was determined to set an example. “Global markets are flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies,” European Commission President Ursula von der Leyen said in September, addressing the EU Parliament.

But the Chinese contradict this as something of the past. They say raising import taxes on Chinese cars would be “naked protectionist behavior.” At a national level, China still uses consumption tax exemptions to help lower production costs for EVs and fuel cell vehicles.

Manufacturers of luxury and environmentally unfriendly goods, including cigarettes and cars, must pay a kind of ‘consumption tax’. NEVs (New Energy Vehicles) are exempt. Like in several European countries, Chinese consumers have been spurred with purchase subsidies and relief from vehicle purchase tax.

Consumer subsidies phased out

Still, as the market matured, these were phased out at the end of 2022, according to the London-based non-profit organization China Dialogue. Now, an apparent price war rages in China to lure in the consumer, a price war that can go on for years.

“The process of new manufacturers replacing old ones in establishing a new market order will likely continue for several years until a new landscape is formed,” wrote chairman Cui Dongshu of the China Passenger Car Association (CPCA).

He said the root cause of the price war is that new technologies are replacing old ones, and NEVs are replacing fuel vehicles. Cui added the cost of building electric vehicles has dropped as lithium prices have fallen and battery costs have been lowered. The scale effect of the rapid development of NEVs has also led to better profit margins.

Fair and fact-based investigation

In September, Ursula von der Leyen promised a ‘fair investigation.’ The electric vehicle sector holds huge potential for Europe’s future competitiveness and green industrial leadership. EU car manufacturers and related sectors are already investing and innovating to develop this potential fully,” the European Commission President said.

“Wherever we find evidence that market distortions and unfair competition impede European efforts, we will act decisively. And we will do this with full respect for our EU and international obligations because Europe plays by the rules within its borders and globally. This anti-subsidy investigation will be thorough, fair, and fact-based.”

Fair and fact-based means that the investigation not only covers cars from Chinese manufacturers exporting directly to Europe, like BYD, MG, Nio, XPeng Motors, Great Wall Motors, or SAIC Motor Corporation, but also ‘foreign’ manufacturers exporting from China. Like Tesla, which has a giga-factory in Shangai that benefitted from Chinese support, and many others.

EU brands made in China

Think about the Chinese Geely group, which includes European car brands. Swedish Volvo is building the EX30 exclusively in China for now, but it also owns its sister brands Polestar, Lynk & Co, and Zeekr, not to mention the new electric Smart brand, which it shares equally with Mercedes-Benz.

Almost all major European car manufacturers have established production facilities or collaborations in China in the past to manufacture vehicles for the local market. But according to BMW’s strategic plans at the end of last year, the made-in-China BMW iX1 eDrive25L will be exported in 2025, for instance.