Chalffy
By Gianmarco Migliavacca
China’s potential response to the European Union’s likely tariffs on Chinese electric vehicles could hurt German carmakers in particular.
Tariffs on Chinese carmakers are becoming a hot topic in Europe, following the U.S. move last month to impose tariffs on imports of electric vehicles and batteries from China. Over the coming days, the EU Commission is expected to announce its own new tariffs on imported Chinese EVs, likely imposed as early as July, after an anti-subsidy investigation (started last October) found evidence of unfair practices by China.
Chinese EV makers have up to a 50% average price advantage over European manufacturers due to their more competitive cost position; as a result, we think EU tariffs of at least 30% to 40% would be needed to be effective. Anything lower could easily be absorbed while allowing the Chinese companies to still make a profit in Europe.
However, larger EU tariffs could trigger Chinese retaliation against European exports. And, on balance, we believe European carmakers would have more to lose than to gain from a trade war, with Chinese retaliation mostly hitting German carmakers.
Volkswagen (OTCPK:VWAGY, OTCPK:VWAPY, OTCPK:VLKAF), Mercedes (OTCPK:MBGAF, OTCPK:MBGYY) and BMW (OTCPK:BMWYY) all export premium cars to China, which represent a good portion of their automotive earnings. Even though all the major German carmakers have joint ventures in China that produce for the local market, a proportion of their automotive profits-from around 9% for BMW to 12% for Mercedes and Volkswagen-comes from premium cars exported to China, which could be at risk if China were to impose tariffs.
That said, European mass-market carmakers including Renault (OTCPK:RNSDF, OTCPK:RNLSY) and Stellantis (STLA), which have negligible exposure to China, would likely see little impact from Chinese retaliation but could actually benefit from EU levies on Chinese imports into Europe. In our view, Chinese retaliation would also not materially affect U.S. carmakers like GM (GM) and Ford (F), as most of their cars for the Chinese market are already produced there.
Ultimately, a trade war against Chinese carmakers would have winners and losers among Western original equipment manufacturers but would hurt European and U.S. consumers by slowing their access to cheaper electric cars. This, in turn, would delay the wider adoption of EVs, given that affordability versus traditional combustion-engine cars remains a key barrier to wider acceptance in both Europe and the U.S.
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