The US has approved a tariff rate of 100% for China-made EVs, while the EU may also start increasing current import duties from July 2024 onwards—although tariffs are likely to remain significantly less aggressive.

Analysis

United States

China

Manager, Clean Energy & Transport

Janire Riobello

Batteries

Road Transportation 

In an attempt to prevent the massive roll-out of low-cost Chinese electric vehicle (EV) models into the US market, on May 14, 2024, the Biden Administration officially announced an increase of import duties on Chinese EVs from the previous 25%&mdash;originally introduced by Donald Trump, on top of the standard 2.5% tariff on car imports&mdash;to 100%. Besides quadrupling Trump-era duties on cars, the new tariffs also affect other elements of EV supply chains currently controlled by China: starting in 2024, the duty rate for EV batteries will increase from the previous 7.5% to 25%, while a new tariff of 25% will be introduced for certain critical materials including cobalt, manganese, and zinc. From 2026, a 25% tariff will also apply for graphite and permanent magnets originating from China...

<h2><a href="https://www.stratasadvisors.com/members/us-imposes-100-tariff-on-china-made-evs-as-eu-anti-dumping-probe-continues-/2024-05-15t112417-0400" title="" target="_blank" rel="noopener">Read More &gt;&gt;</a></h2>
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US Imposes 100% Tariff on China-Made EVs as EU Anti-Dumping Probe Continues 

In an attempt to prevent the massive roll-out of low-cost Chinese electric vehicle (EV) models into the US market, on May 14, 2024, the Biden Administration officially announced an increase of import duties on Chinese EVs from the previous 25%&mdash;originally introduced by Donald Trump, on top of the standard 2.5% tariff on car imports&mdash;to 100%. Besides quadrupling Trump-era duties on cars, the new tariffs also affect other elements of EV supply chains currently controlled by China: starting in 2024, the duty rate for EV batteries will increase from the previous 7.5% to 25%, while a new tariff of 25% will be introduced for certain critical materials including cobalt, manganese, and zinc. From 2026, a 25% tariff will also apply for graphite and permanent magnets originating from China.
Albeit less abruptly, the EU may also introduce similar tariffs on China-made EVs as preliminary findings of the <a href="https://www.stratasadvisors.com/members/eu-investigation-into-chinese-bevs-continues-as-eu-countries-rush-towards-protectionism/2024-01-24t043000-0500">European Commission&rsquo;s anti-dumping investigation</a>, launched in October 2023, seem to confirm allegations of unfair competition. While the anti-dumping probe is scheduled to be completed by November 2024, the EU could start imposing provisional retroactive tariffs from early July 2024, potentially increasing the current 10% tax rate to at least 20%.
The distinct approaches adopted by the US and the EU reflect the significant differences in the expansion of Chinese EVs in each market. While the US EV market is still largely dominated by local brands and has typically founded protectionist moves against China on security-related concerns, the EU has become the largest recipient of Chinese EVs in recent years, with their market share in total EU new EV registrations doubling in 2023 compared to 2022. Similarly, compared to legacy American OEMs, European carmakers have a relatively more robust manufacturing base in China&mdash;and would thus be significantly more affected were China to adopt retaliatory tariffs in response to restrictive anti-dumping measures in the EU.
With EV demand slightly slowing down in the first quarter of 2024 in China, the US, and some European markets like Germany, China&rsquo;s EV production capacity continues to grow, driving artificially low pricing which is proving effective in choking out multiple EV startups that emerged in the domestic market in recent years. Outpacing domestic demand, China&rsquo;s EV overcapacity has been leveraged to increase car exports not only to the EU market but also to multiple emerging EV markets worldwide, including Southeast Asia, Australia, Latin America, and Middle East. For example, Chinese brands captured almost two-thirds of total Southeast Asian EV sales in 1Q2024, with BYD alone capturing over one quarter of the market. In Latin America, the striking success of BYD&rsquo;s Dolphin and Seal as well as Ora&rsquo;s Good Cat led to a market share of over 88% for Chinese brands in 1Q2024, while the Middle East has seen a major uptake of Chinese EVs as well with the launch of models such as Geometry C, Zeekr X, Denza N7, Xpeng G9 and P7, and Seres 5 and 3, in addition to flagship BYD models, in rapidly growing EV markets such as Israel.

[shoojuview id="dyvogndzcxcrbinsqyno"]
Source: Stratas Advisors, 2024
&nbsp;
In light of protectionist moves in key EV markets, Chinese OEMs are likely to gradually expand operations to the West to bypass Made-in-China tariffs&mdash;similar to the approach followed by major Chinese battery manufacturers. In Europe, Chery has so far been the first Chinese OEM setting up a car manufacturing base in Spain (former Nissan factory in Barcelona&rsquo;s Zona Franca), producing the new Omoda 5 SUV. BYD is making progress on its planned factory in Hungary, scheduled to come online in 2026 with an expected production capacity of 200,000 EVs per year. After the debut of Dongfeng sub-brand Voyah in the Italian market in 2024, the Chinese legacy automaker is also rumored to be potentially planning an EV factory in Italy, although plans are still at a very early stage. In North America, Mexico presents multiple opportunities for a potential entry of Chinese brands&mdash;especially considering that they would obtain access to IRA tax credits in the US assuming that battery and mineral components are met, and that shareholdings are restructured to avoid a foreign entity of concern (FOEC) designation. In fact, Mexico has already attracted investment from Jetour in Guanajuato state, and will likely host BYD&rsquo;s new EV factory in Jalisco state in the coming years.
As production is nearshored to the West, it is still unclear whether higher tariffs will succeed in preventing a stronger penetration of Chinese brands and/or China-made cars. For example, Stratas Advisors estimates suggest that a 20% tariff on China-made cars, as opposed to the current 10% rate, would have a stronger effect on the price of larger-sized EVs. In particular, the price of China-made SUVs would potentially average at 9.7% higher than Europe-made SUVs, while currently China-made SUVs are slightly cheaper than their European counterparts. Similarly, the price of China-made electric compact cars could increase by a less aggressive 5.4% compared to Europe-made cars. However, many compact Chinese cars would still potentially remain cheaper than their European counterparts in a 20% tariff scenario, including best-selling MG4 and BYD Dolphin.

[shoojuview id="npxhxfflyfbcwnfxmwbz"]
Note: Prices based on German market at time of writing. Weighted average is based on sales volumes data by model.
Source: Stratas Advisors, 2024

In turn, the 100% tariff adopted by the Biden Administration would significantly impact the price of China-made electric SUVs and compact cars, which are currently -24.7% and -23% cheaper on average than their US-made counterparts, respectively. Once the tariff applies, China-made compact cars would actually become more expensive than larger SUVs, facing a price increase of 32.7% compared to US-made models. In the case of SUVs, the 100% tariff would result in China-made models selling at an average price of almost 30% above that of US-made SUVs. However, higher tariffs are not expected to have an immediate effect on the US market as only a few electric models are currently imported from China&mdash;including Polestar 2 and Toyota BZ4x, which are however among the thirty best-selling full-electric compact and SUV models in the US. Notably, the Volvo EX30, manufactured in China, is expected to become one of the most affordable EV models in the US once it is launched this year, starting at USD 35,000. However, even where a 100% tariff is applied, the Volvo EX30&mdash;which has quickly become one of the top-selling models in Europe&mdash;is likely to remain about 7.8% cheaper than US-made SUVs.
&nbsp;
[shoojuview id="roqzpcrdhpuvlwplvhyi"]
Note: Weighted average is based on sales volumes data by model.
Source: Stratas Advisors, 2024

In an attempt to prevent the massive roll-out of low-cost Chinese electric vehicle (EV) models into the US market, on May 14, 2024, the Biden Administration officially announced an increase of import duties on Chinese EVs from the previous 25%&mdash;originally introduced by Donald Trump, on top of the standard 2.5% tariff on car imports&mdash;to 100%. Besides quadrupling Trump-era duties on cars, the new tariffs also affect other elements of EV supply chains currently controlled by China: starting in 2024, the duty rate for EV batteries will increase from the previous 7.5% to 25%, while a new tariff of 25% will be introduced for certain critical materials including cobalt, manganese, and zinc. From 2026, a 25% tariff will also apply for graphite and permanent magnets originating from China.
Albeit less abruptly, the EU may also introduce similar tariffs on China-made EVs as preliminary findings of the European Commission&rsquo;s anti-dumping investigation, launched in October 2023, seem to confirm allegations of unfair competition. While the anti-dumping probe is scheduled to be completed by November 2024, the EU could start imposing provisional retroactive tariffs from early July 2024, potentially increasing the current 10% tax rate to at least 20%.



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