The European Union will impose specific customs duties on importers of vehicles produced in China. A surcharge ranging from 17% to 38% which must compensate for the subsidies distorting competition with European manufacturers. But perverse effects could ultimately emerge, penalizing consumers.
The European Commission confirmed this Wednesday, June 12, the implementation of specific customs duties targeting imports of vehicles produced in China.
The conclusion of a long investigation which aimed to highlight the subsidies that can benefit from manufacturers present in China and who export to Europe: Chinese brands, but also joint ventures of European manufacturers and Tesla, the only foreign company to produce in China without relying on a local partner. A decision that raises many questions.
• Why this increase in customs duties for cars produced in China?
While the European Union has set a course towards sales of new electric-only cars in 2035, the “zero emissions” offer has been growing strongly in recent years.
Faced with models from European manufacturers, their Chinese competitors have launched a major commercial offensive with several brands which are now present, such as BYD or MG.
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According to Commission figures, the market share of European industry in sales of new cars fell from 68.9% in 2020 to 60% in 2023. At the same time, the market share of Chinese imports rose from 3.9% to 25%.
But Europe suspected unfair competition, with prices distorted by a large subsidy regime. This is what triggered the opening of this investigation, which consisted of sending a questionnaire, exchanges of information between the Commission, the manufacturers concerned and the Chinese authorities and visits to factories in China .
The survey thus made it possible to highlight these direct or indirect subsidieswith for example the supply of lithium and batteries at prices lower than market prices, land for factory construction at an equally favorable rate, exemptions from local taxes or a distorted financing system notably via bonds green.
The objective is also to move away from the idea of a Europe often considered as “the idiot of the global village”. Until now, only a 10% tax applied to vehicles imported into the Union. It is 100% in the United States, 40% in Turkey or between 70 and 100% in India, detailed an expert from the European Commission during a press briefing organized on Wednesday.
• What price increase for the vehicles concerned?
The Commission has set surcharges at different levels depending on the results of the investigation and which will be added to the “normal” customs duties of 10% from the beginning of July.
BYD receives the most favorable regime, with a surcharge of 17.4%. It will be 20% For Geelywhich notably produces the new Smarts as part of its joint venture with Mercedes-Benz and 38.1% for the SAIC group and the MG brand.
“We were rather expecting a surcharge of around 10 points, so these additional duties turn out to be quite aggressive: for MG, we would be at almost 50% customs duties,” reacts an expert in the automotive sector.
Tesla, for its part, is placed in a separate category, with a surcharge of 21%. A rate which could be revised in the coming weeks with discussions planned between the Commission and the American manufacturer.
As for the French brands, only Dacia produces its Spring in China and the Renault group has not yet responded to our request for comment on a potential increase in its price, while a new version will be launched in the coming weeks.
Stellantis, for its part, does not import electric cars produced in China. Its joint venture with the Chinese brand Leapmotor aims for production in Europe and will therefore only initially be affected by these customs duties. The first LeapMotor models will be launched in Europe in September.
If price increases are therefore expected on imported electric vehicles, it is difficult to anticipate the real consequences on prices practiced by these different brands. Customs duties apply to an undisclosed price of the car leaving the factory. By reducing their margin rate, for example, the companies concerned may not fully pass on the consequences of this new customs regime to the end customer.
These “provisional rights” will come into effect on July 5 on new imported vehicles and therefore not stocks. An important point as European ports are currently overflowing with Chinese cars, which could also make it possible to smooth out the evolution of prices over time, until the beginning of November and a vote by Member States which will decide whether these measures are maintained.
• What are the expected effects in Europe?
For the European Commission, the establishment of these provisional customs duties should make it possible to protect European industry of this competition deemed unfair.
The stakes are high with nearly 2.5 million direct jobs and 10.3 million indirect jobs. European manufacturers are investing massively in the transition to electricity and regulators want to guarantee outlets for this new offer.
“These customs duties must be a temporary step to protect themselves from this unfair competition, but European manufacturers must continue their efforts to innovate and improve productivity,” reacts our automotive sector expert.
One way too to encourage Chinese companies to produce in Europe and therefore to support local investment and employment. BYD has already planned to build a factory in Hungary and MG must announce its future production site in Europe by the end of the year.
• Potential adverse effects?
Already annoyed by the opening of this investigation, China has already reacted by indicating this Thursday that it “reserves the right” to file a complaint with the World Trade Organization (WTO) and promised to ” take all necessary measures to resolutely defend the rights and interests of Chinese enterprises.”
A risk of economic reprisals already pointed out and which goes beyond the automobile sector. In January, Beijing launched an investigation targeting all wine spirits imported from the European Union. In this context, cognac producers said on Wednesday they were “deeply” worried.
If French manufacturers have little presence in China, German brands have a lot to lose with a possible increase in customs duties on engine capacities greater than 2.5 liters, put forward by the Chinese authorities. However, this represents 100% of Porsche sales in China last year, 22% for Mercedes, 14% for BMW and 4% for Volkswagen, recalls an analysis note from UBS.
Finally, the main risk remains to see an increase in the prices of electric cars, not just models from Chinese brands, at a time when a reverse movement is starting to be observed with the launches of the new Renault R5 and Citroën C3 this year.
Chinese brands have just lost eligibility for the ecological bonus in France. Taking into account this loss and the increase in customs duties, MG (the manufacturer most affected by this increase in duties) could see the price of its MG4 double. However, this model has contributed to the development of sales of electric cars since its launch at the end of 2022. Not to mention the downward pressure on the prices of electric cars since the arrival of Chinese brands, pushing European brands to reduce their margins and to offer more affordable vehicles to consumers.
The price of electric cars made in Europe could also increase: China remains the main producer of batteries and the European sector remains dependent on these suppliers while awaiting the construction of its own production sites, the famous Gigafactories. An increase in the price of batteries, in retaliation, could thus contribute to increasing the cost of producing these cars in Europe.
