On October 29, local time, the European Commission, regardless of China's opposition, announced the imposition of anti-subsidy duties on battery electric vehicles (BEVs) imported from China for a period of five years, effective from October 30.

On top of the existing 10% tariff, Chinese export producers will face additional anti-subsidy duties ranging from 17.0% to 35.3%, with BYD having the lowest rate at 17.0% and SAIC Motor the highest at 35.3%. According to the statement released by the European Commission, the aforementioned measures will expire at the end of the five-year period unless a validity review is initiated during that time.

A spokesperson for China's Ministry of Commerce recently stated that China does not agree with or accept the ruling results and has filed a lawsuit under the WTO dispute settlement mechanism. They also mentioned that technical teams from China and Europe are conducting a new phase of consultations. The China Association of Automobile Manufacturers also issued a protest, stating that the final ruling is not objective and is extremely unfair to Chinese automakers.

Faced with this trade protectionist move by the EU, many insiders believe that establishing production bases in Europe is a way out for Chinese automakers to cope with high tariffs. In fact, many Chinese automakers are considering this option, including BYD, Geely, Chery, Great Wall Motors, and Xpeng, all of which have plans to build factories in Europe. Is establishing a factory in Europe really the best choice under the current EU tariff policy?

The EU imposes tariffs despite opposition

The EU's anti-subsidy investigation into Chinese electric vehicles began on October 3 last year. Provisional anti-subsidy duties were imposed on electric vehicles imported from China starting from July 4 this year, and a tariff proposal targeting China was promoted on October 4.

Ironically, in the final draft decision on anti-subsidy duties on electric vehicles from China disclosed in August this year, an EU official stated that the investigation did not find any substantial damage to EU automakers caused by Chinese new energy vehicles, but only predicted so-called "risks".

In the final vote on whether to impose anti-subsidy tariffs on imported electric vehicles from China, although 17 countries did not support this policy (5 votes against and 12 abstentions), with only 10 member states voting in favor, the EU still passed this unfair and protectionist tariff policy.

According to the statement released by the European Commission on October 29, on top of the existing 10% tariff, Chinese export producers will face additional anti-subsidy duties, with BYD at 17.0%, Geely at 18.8%, SAIC Motor at 35.3%, and other cooperating companies facing a 20.7% tariff, while non-cooperating companies will bear a 35.3% tariff. It is worth mentioning that after requesting a separate examination, Tesla is only subject to a 7.8% tariff.

The statement said that the EU and China continue to strive to find alternative solutions compatible with the WTO and remain open to individual negotiations with individual exporters on price undertakings.

In fact, the new tariff policy announced by the EU targeting Chinese electric vehicles is unpopular, not only triggering strong dissatisfaction and opposition from European political, business, and academic circles but also unanimous opposition from major European automakers, including Volkswagen, BMW, and Mercedes-Benz.

German Chancellor Olaf Scholz has publicly criticized the EU's policy of imposing tariffs on electric vehicles from China on multiple occasions. He stated that 17 countries within the EU do not support this policy, and all the automakers he has spoken with are also opposed to it. He believes that China and the EU should reach an agreement.

Hildegard Müller, President of the German Automobile Industry Association, said that the EU's imposition of anti-subsidy tariffs is a setback for global free trade, which may exacerbate the risk of trade conflicts and ultimately harm the entire automotive industry. Austrian automotive expert Fritz Indra also pointed out that this approach does not protect European automakers and cannot eliminate the price advantage of Chinese electric vehicles.

Oliver Zipse, CEO of BMW, believes that these measures harm the business models of globally active companies, limit the supply of electric vehicles to European customers, and thus slow down the decarbonization process in the transportation sector.

Multiple Chinese automakers consider building factories in Europe

The EU detailed the calculation method of the tax rates for the three sampled Chinese companies and the content of defenses during the investigation in a 278-page document.

On top of the existing 10% tariff, the sampled SAIC Motor, Geely, and BYD were subject to additional tax rates of 35.3%, 18.8%, and 17.0%, respectively. Additionally, companies that were not sampled but cooperated with the investigation, including AITO, JAC Motors, BMW Brilliance (including Beam Auto, which produces BMW MINI), Chery, FAW, Changan, Dongfeng, Great Wall Motors, NIO, XPeng, and King Long, were all subject to a 20.7% anti-subsidy tariff, while other non-cooperating companies will be charged a 35.3% tariff.

The reason SAIC Motor received "special attention" from the EU is mainly related to sales. Although BYD is the world's largest Chinese electric vehicle company in terms of sales, in the European market, SAIC Motor Group is the largest Chinese automaker in terms of sales volume. The MG brand alone delivered over 230,000 new vehicles in Europe in 2023, with 150,000 deliveries in the first seven months of this year, a volume that poses a threat to European local automotive brands.

Moreover, during the EU's "anti-subsidy" investigation into Chinese automakers, some business-sensitive information was involved, such as the technology, composition, and formula of power batteries. SAIC Motor did not cooperate and even submitted defenses, which angered the EU.

Regarding the EU's final ruling, SAIC Motor issued an announcement on October 30 stating that the company deeply regrets this and intends to take necessary legal measures to file a lawsuit with the European Court of Justice to protect its legitimate rights and interests. SAIC Motor also revealed that the group has provided thousands of documentary materials and written evidence through questionnaires, written defenses, and statements at hearings to conduct legal defenses.

Other Chinese automakers have not yet made public responses to the EU's final ruling, but it is certain that no Chinese automakers will abandon the European market as a result. Since electric vehicles produced in Europe are not subject to compulsory tariffs, many Chinese companies have expressed interest in building factories in Europe since the EU initiated the anti-subsidy investigation into Chinese electric vehicles.

Li Ke, Executive Vice President of BYD, stated at this year's Paris Motor Show that BYD will produce more components in Europe and assemble battery packs at its factories in Hungary and Turkey, while reducing its dependence on importing components from China to further reduce production costs. Additionally, BYD has decided to acquire German dealer Hedin Electric Vehicles to strengthen its sales channels and service network in the German market.

Li Chuanhai, Vice President of Geely Automobile Group, said during the Frankfurt Motor Show in Germany that the company is looking for a location to build an automobile factory in Europe, but this plan is not yet 100% certain. Nicolas Appelgren, the European CEO of Geely's premium brand Lynk & Co., also stated that Geely is considering sites in Poland for factory construction.

Furthermore, Chery has established a joint venture in Spain to produce passenger vehicles by acquiring and transforming an existing Nissan factory. SAIC Motor Group is also considering building its first electric vehicle factory in Europe in Spain. XPeng Motors has also expressed its intention to consider building a factory in Europe to produce electric vehicles in response to the impact of EU electric vehicle tariffs.

What challenges will building factories in Europe face?

Since establishing production bases in Europe to produce electric vehicles will not be subject to high tariffs, achieving a "localized" layout seems to be the best way out for Chinese automakers to cope with tariff impacts. In fact, the EU's anti-subsidy investigation and imposition of tariffs on Chinese electric vehicles also have the intention of forcing Chinese automakers to strengthen their presence in Europe to drive the development of local enterprises.

Currently, when Chinese automakers establish production bases overseas, they mostly prioritize Southeast Asia, where tariff barriers are relatively low and there are policy incentives, followed by South America. Many Chinese automakers have considered building factories in Europe due to changes in the EU's electric vehicle tariff policy, but concrete implementation is not easy and poses significant risks and challenges.

Firstly, Chinese automakers must face challenges related to cultural differences, laws, and regulations, as well as extremely stringent environmental protection and employment standards. As we all know, the political situation within the EU is quite complex, and the opinions of different member states on trade policies cannot be unified, making investment policies full of uncertainty.

It should be noted that Western countries and China have different understandings of "corporate control." Labor relations may become a major area of conflict, with the most typical example being trade unions.

Taking the United States as an example, the confrontation and game between American trade unions and enterprises have always amazed the Chinese people. The US factory of Fuyao Glass Industry Group once encountered a "trade union crisis," which severely impacted normal production and operation. During the 2008 global economic crisis, the bankruptcy of the Big Three American automakers was also related to high labor costs. Chinese automakers planning to build factories in Europe will inevitably face challenges related to cultural differences and employment standards. Before making a decision, Chinese automakers must thoroughly understand local culture and regulations.

Furthermore, for Chinese automakers to establish a "localized" presence in Europe, the fastest way to intervene may be to establish joint ventures with influential local enterprises. However, this approach may expose them to the risk of technology outflow. Informed sources have revealed that the EU has requested Chinese automakers to share or even transfer electric vehicle technology, intending to leverage China's technological and industrial chain advantages to promote the development of the local electric vehicle industry in Europe, similar to the joint venture approach adopted by foreign automakers when entering China in the past.

Additionally, building factories in Europe also poses challenges from the industrial and supply chains. The supply chain system for the electric vehicle industry in Europe is not as well-developed as that in China, especially regarding some key components that are heavily reliant on imports. To enhance cost advantages and overall competitiveness, Chinese automakers cannot bypass the issue of coordinated development across the industrial chain. Strengthening their supply chain resilience is a must for them.

It is worth mentioning that at the Paris Motor Show held this month, Chinese automakers, including BYD, GAC Group, Hongqi, Wenjie, XPeng, NIO, and Chery, all showcased their new products and technologies at the exhibition, demonstrating their emphasis on the European market. Amid trade protectionism, Chinese automakers are still not giving up on the European market but are actively seeking solutions to overcome tariff barriers and continue to deepen their overseas market layout. Negotiations between China and Europe are ongoing, and we will keep a close eye on whether an alternative solution to the tariffs imposed on Chinese electric vehicles can be found.