EU-China tariff proposals gather momentum

THE European Union is moving to impose stricter tariffs in the importation of Chinese vehicles, particularly EVs, while at the same time competing fiercely to attract Chinese manufacturing to the region, with the investment and jobs that it brings.

It is an interesting juxtaposition for EU member nations…

On one hand, import taxes could help European automotive manufacturers better compete with their Chinese counterparts. On the other, it may spur Chinese automotive manufacturers that are already investing heavily in the region to settle in for the long term.

Sales of Chinese-brand cars comprised four per cent of the European market last year and are forecast to hit seven per cent by 2028.

Hungary, which produced about 500,000 vehicles in 2023, secured the first European factory investment by a Chinese manufacturer, announced last year by BYD. The company is considering a second European plant from as early as next year.

Budapest is also negotiating with Great Wall Motors for its European plant, with the country offering cash for job creation, tax breaks, and relaxed regulation in targeted zones to attract foreign investment.

Hungary has spent more than €920 million ($A1.5b) in recent years to support new battery plants from groups including SK On, Samsung SDI, and CATL.

China’s Leapmotor will use existing capacity of Stellantis with likely production now slated for Poland.

Poland has several programs currently supporting more than €9.2 billion ($A14.9b) of investments, including one favouring the transition to a net-zero economy, and another offering corporate tax relief of as much as 50 per cent in high unemployment regions.

Spain, Europe’s second largest automotive manufacturer after Germany, has secured investment from Chery which will start production in the fourth quarter of this year at the former Nissan facility in Barcelona.

Chery is expected to benefit from Spain’s €3.7 billion ($A6.03b) program launched in 2020 to attract EV and battery plants.

China’s Envision Group has already received €300 million ($A489m) in incentives under the scheme for a €2.5 billion ($A4.07b) battery plant creating 3000 jobs. Spain might also host Stellantis’ fourth gigafactory in conjunction with China’s CATL.

Chery also plans a second, even larger facility in Europe and has held talks with the Italian government which is keen to attract a second automotive manufacturer to rival Fiat.

Italy can tap into its national automotive fund, worth €6 billion ($A9.78b) between 2025 and 2030, for incentives for both car buyers and manufacturers. China’s Dongfeng is among several other automotive manufacturers that have held investment discussions with the Italian government.

SAIC, owner of MG Motor and others, aims to build two European plants.

The first, based at an existing facility, could be announced as early as next month and would employ a CKD style manufacturing technique targeting annual production of up to 50,000 units.

SAIC’s second European plant would be built from scratch and produce up to 200,000 vehicles per annum.

Germany, Hungary, Italy, and Spain are understood to be on SAIC’s location shortlist.

In Europe, Chinese automotive manufacturers face far higher costs than they do back home. Everything from labour to energy to regulatory compliance is more expensive in the EU.

But costs for exporting vehicles from China to Europe can likewise add up, threatening already narrow margins. For lower cost vehicles, the decision to build on the continent makes a great deal of sense, even if there are barriers that must be torn down.

This week, Turkey announced it will raise tariffs on all vehicle purchased from China by 40 per cent in a bid to curb imports and narrow the current account deficit.

The tariff imposed will be a minimum of €6400 ($A10,430) according to a presidential decision published by the Official Gazette. The tariff is expected to be imposed from as early as next month.

China is facing increasing trade pressures worldwide over its growing exports of electric vehicles, with many countries claiming they are being heavily subsidised by Beijing.

The European Commission is expected to announce a decision on the imposition of additional tariffs by as early as next week. It is expected tariffs could rise from 10- to as much as 30 per cent.

Leading European automotive manufacturers say they are growing increasingly anxious about the threat from low-cost Chinese electric vehicles but are optimistic they can defend their market share.

While European manufacturers await the European Commission’s decision, they are preparing to match Chinese technology, if not price.

In a recent interview with Reuters, Hyundai Europe chief marketing officer Andreas-Christof Hofmann said the manufacturer is holding internal discussions about how to best manage increasing Chinese competition and what kind of measures can be taken to defend its market position.

“We really should stick to our roots, our assets, and our USPs,” he said.

“To strengthen our strengths could be a good start. The market and the customer will decide.”

Volkswagen Group, meanwhile, is urging European authorities to install a regulatory framework over the next few years to help ensure the survival of German and other European automotive manufacturers.

“We need a kind of master plan,” said Volkswagen board member responsible for technology Thomas Schmall.

“The window is closing. We have two- to three years. If we don’t, it will be really tough to survive as a German industry,” he warned.

Mr Schmall said the intensifying competition from China is sharpening the focus on speed-to-market as a key, differentiating competitive factor.

“In the past it was size. Today it is speed,” he added.

But European automotive manufacturers aren’t just battling Chinese competition – European regulations have made cars more expensive over the last two decades.

It is a fact Renault Italy CEO Raffaele Fusilli said Renault and others must work around.

The company wants to shave 40 per cent off production costs by 2027 and reduce production time by a third. At the same time, it also aims to be profitable in the long term.

“Everyone wants to be sustainable and green, but we have also got to be profitable. Everybody wants to go to heaven, but nobody wants to die,” he stated.

This means profound change ahead for the French company, including the introduction of smaller, more efficient batteries at a reduced price. The manufacturer said it does not plan to cut the number of employees at its pants, rather that it is preparing for growth.

“We have time to fill the gap,” added Mr Fusilli.

“It is going to happen, even if not quickly, and we will win.”

Throwing his considerable weight behind the argument, German Chancellor Olaf Schloz spoke out against restricting automotive trade as the European Union moves closer to imposing stricter tariffs on Chinese-made EVs.

Germany’s automotive industry is benefitting from business in China and will be able to compete with Chinese automotive manufacturers if trade remains “free and fair”, said Mr Scholz.

“Isolation and illegal customs barriers ultimately just makes everything more expensive, and everyone poorer,” he added.

“We do not close our markets to foreign companies because we do not want that for our companies either.

“Doubting progress, (and) delaying renewal and transformation would have bitter consequences. If we do that, others will overtake us,” he cautioned.

It’s a point BYD chairman Wang Chuanfu echoed from another viewpoint.

Mr Chuanfu said foreign countries are “afraid” of Chinese-made electric vehicles, levelling his comments at both the European Union and the United States.

“There are many examples of politicians in other countries who are worried about EVs in China,” he said this week.

“If you are not strong enough, they will not be afraid of you.”

Automotive News Europe, Bloomberg, and Reuters contributed to this report.