The European Union (EU) is set to impose major taxes on electric vehicles imported from China after the majority of EU member states approved a proposal for steep EV tariffs. With the EU already levying provisional import tariffs of up to 38% on Chinese electric cars, the recently approved plan is part of the European Commission’s efforts to protect the EU’s automotive sector from “unfair competition.”
Chinese companies can manufacture electric cars at low cost and sell them at affordable prices thanks to a decade-plus of government subsidies and programs. On the other hand, western automakers still haven’t figured out how to lower EV production costs without compromising quality, forcing them to sell their end products at high prices just to break even.
As a result, Chinese EV companies present a real existential threat to western automakers, which risk being muscled out of their home markets, especially now that electric cars are expected to eventually replace internal combustion engine (ICE) cars.
The European Commission moved fast to stop the proliferation of Chinese EVs in the European market through provisional import tariffs and will now impose steeper tariffs on electric cars manufactured in China to protect the EU’s vehicle sector. Chinese electric cars entering EU ports will now be subject to up to 45% import tariffs (up from 10%) for the next five years.
Some EU member states argue that the move will saddle customers with high EV prices and could potentially result in a trade war between Beijing and EU nations, including Germany. Beijing has also spoken out against the tariffs and called the EU’s decision to impose steeper tariffs “protectionist.”
Although China also has plans to export EVs to Africa in the future, it is in a precarious position. Beijing’s car industry has experienced significant growth over the past couple of decades and is poised to become a major player on the global scale. However, with Chinese automakers such as BYD slowly gaining a foothold in international markets, western nations fear that that their carmakers simply cannot compete with China’s cheap prices.
Losing access to the EU market would be a major blow to China because the east Asian nation has been counting on the European Union as its largest foreign EV market to help revive its economy by purchasing high-tech products. China is already cut off from the North American market as both the United States and Canada have imposed a 100% import tariff on its electric cars, making the European market even more precious.
The global electric vehicle industry is still very much in flux, and startups such as QuantumScape Corp. (NYSE: QS) are likely to constantly monitor developments in the different major markets in order to assess how any policy changes could impact their future prospects in those markets.
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