When the European Commission announced its anti-subsidy investigation against China-made all-electric car (BEV) imports last year, it said it was moving to protect its automotive industry.

Then, EC President Ursula von der Leyen claimed that cheaper Chinese BEVs were “distorting” the EU market with their “artificially low prices,” allegedly a result of “huge state subsidies.”

To futureproof the bloc’s automotive sector towards electrification and support its growing battery and EV supply chains, the EC is proposing countervailing duties on China BEV imports. These tariffs will be in addition to the ordinary 10% levy, and will vary according to importers based on an EC investigation.  

Despite the EC’s best interests at heart, European and Chinese carmakers are wary of the impacts such measures will have on their businesses if they are implemented in November. The draft definitive countervailing duties were disclosed last week. Carmakers and interested parties have until 30 August to comment on their rates, before the proposal goes for voting in October.

And the reaction so far has not been positive – at least not from those who spoke with Kallanish. German manufacturers continue to voice their opposition to protectionist measures, while Swedish carmakers adopt a more neutral approach. French and Italian firms choose not to comment on the matter, and Chinese companies have collectively expressed “strong dissatisfaction” and “firm opposition.”

Rates have been tweaked twice since first announced as provisional duties on 12 June. As of 20 August, the rates for sampled Chinese firms were: 17% for BYD, 19.3% for Geely and 36.3% for SAIC. The average rate for so-called “cooperating companies,” which include Western and Chinese firms, is 21.3%. The rate for “non-cooperating companies” is 36.3%. Tesla, however, has been granted a special 9% rate as an “exporting producer” after requesting an individual examination and providing substantial subsidy evidence to EC officials.

EU proposed countervailing duty rates

Source: European Commission, Kallanish

“The Volkswagen Group continues to find it incomprehensible that Chinese manufacturers are subject to lower countervailing duties than European manufacturers,” a spokesperson told Kallanish. “The difference between individual manufacturers raises questions, as they have an additional impact on the price competitiveness of European manufacturers.”

Tackling such questions, particularly whether Tesla’s rate is fair, the EC says: “Any differences in duty levels reflect the varying levels of subsidisation among the different schemes, which were affected by various elements, such as the level of cooperation and the different organisational structures in areas like financing.”

With several joint ventures with Chinese firms, including state-owned SAIC, the Volkswagen Group continues to criticise the investigation proceedings. It claims the EC did not subject the previous investigation to a thorough review. It now vows to carefully evaluate the EC’s explanations and reserves the right to “take further steps in the proceedings.”

The BMW Group says it currently exports three models from China to Europe: the BMW iX3, the MINI Cooper Electric, and the MINI Aceman Electric. They will face an additional tariff of 21.3% as the group’s JVs BBA and Spotlight were classified as “cooperating companies.” The group refrained from commenting on other companies’ tariff rates or its potential next steps in the EC’s consultation period.

Though Mercedes-Benz explains it produces in China exclusively for the Chinese market, it supports a “liberal trade order based on WTO rules.” This includes the principle that all participants find the same conditions, a spokesperson notes.

“If a general trend towards protectionism gains a foothold, this has negative economic consequences for all stakeholders involved. This cannot be in the interests of politics, business and society,” the spokesperson adds. “We call on the EU and China to remain in dialogue and achieve a solution that is in the interests of both sides.”

Mercedes-Benz’s joint venture with Geely, Smart requested not to be considered as part of the Geely Group but as a separate exporting producer, but the EC rejected such a request. According to EC documents, Smart is part of Geely’s umbrella.

The same applies to Swedish EV brand Polestar, which is owned by Geely and uses the Chinese firm’s manufacturing network in China and abroad to produce its vehicles. Its Polestar 4 model, for which European deliveries have just started, is subject to a 19.3% countervailing tariff plus the usual 10%. 

To avoid higher import duties in the EU, Polestar is starting new production lines in South Korea and the US for both the Polestar 4 and 3. A spokesperson says that for now, “the price that customers are quoted at the time of order confirmation is the price that they will pay upon delivery.”

Similarly, Volvo Cars – also owned by Geely – plans to start production of its best-selling EX30 in Belgium during the first half of 2025. At the moment, the BEV is made in China and exported globally. “Once the EU investigation concludes later this year … we will have a final and clear overview of how tariffs will impact us,” the company says.

Spanish carmaker SEAT, meanwhile, warns that a total 31.3% import tariff on its CUPRA Tavascan BEV could undermine its transition to e-mobility. A spokesperson says the company is working with parent company VW Group to minimise impacts and “will do everything possible” to prevent these additional duties from affecting the price of the model. “As first proof of our commitment to customers and partners, the price of the car will remain unchanged for all deliveries in 2024,” she adds. “This car is key to the transformation of SEAT and plays an important role in meeting emissions targets.”

The European Automobile Manufacturers’ Association (ACEA) argues that free and fair trade is essential to create a globally competitive European auto industry, while “healthy competition” drives innovation and choice for consumers. “What the European automotive sector needs above all else to be globally competitive is a robust industrial strategy for electromobility,” it adds.

“The imposition of high countervailing duties on Chinese electric vehicles brings great risks and uncertainties to Chinese companies operating in and investing in Europe,” warns the China Association of Automobile Manufacturers (CAAM). This will undermine investor confidence, leading to a “serious negative impact” on the development of the EU auto industry, job opportunities and its green transformation, it adds.

Responding to last week’s announcement, Beijing reinforced its call for “fair, non-discriminatory and transparent” conditions, in line with WTO trade rules. The Ministry of Commerce continues to argue that the investigation is not considering China’s “opinions and evidence,” despite more than ten rounds of joint technical consultations since late June.

While stating China will “take all necessary measures to resolutely defend the legitimate rights and interests of Chinese companies,” the ministry hopes the parties can work on “practical actions to avoid the escalation of trade frictions.”

Leaving rhetoric and politics aside, total clarity will only come late this year – after the EU Council vote and the potential definitive new tariffs are officialised. Yet, over the next few months, Chinese OEMs are likely to target “safe haven” non-EU European markets such as Norway, Switzerland, and the UK, according to Matthias Schmidt, European auto analyst at Schmidt Automotive Research.

Another expected outcome is a slight decline in BYD’s BEV sales, until it starts production in their planned Hungary facility later next year. However, the company may also switch its EU focus to plug-in hybrid electric vehicles (PHEVs), which are not included in the tariff increase.

“We saw them [BYD] unload 1,000 PHEV models in Spain last week indicating this,” Schmidt told Kallanish on 21 August. “MG Motor [owned by SAIC] may well focus more on PHEVs and hybrids in the EU and leave the BEVs to the EFTA + UK markets. The company is in a healthy position to meet EU CO2 compliance already.”

Fringe markets such as Israel, a major port location for China, and Turkey may also gain further interest from Chinese OEMs. In fact, BYD has recently announced it will build an EV plant in Turkey, which enjoys a free customs deal with the EU.

“In short, we expect the growth trajectory from Chinese BEVs to come to a halt before they regroup and retool and reshore existing European production sites (Geely brands could use Volvo sites), sign contracts with manufacturers in Europe (Valmet/Magna) or begin local production at greenfield sites before we see real growth return once again,” Schmidt concludes.