German Automakers Wary of Reprisals If EU Imposes Tariffs on Chinese EVs

German automakers say the Biden administration’s move to levy 100% tariffs on electric vehicles made in China could lead to reprisals from the Chinese government if the European Union follows the U.S.’s example and imposes similar tariffs. The tariffs are part of a package of measures designed to protect U.S. manufacturers from more affordable Chinese imports and will be instrumental in preserving America’s domestic auto industry as it transitions to electric vehicles.

With the EU dealing with an influx of cheap electric cars from China that are already making it difficult for European carmakers to compete in the nascent EV market, the regional bloc will likely pass similar measures. The European Commission has already launched a probe into the possibility of levying tariffs on Chinese EVs to help protect local automakers, but auto CEOs from Germany are afraid this could draw Beijing’s wrath.

The EU is expected to reveal a provisional list of the impending import duties in June, several months after the European Commission first began investigating whether the Chinese government is artificially lowering EV prices and distorting the market by pumping billions of dollars’ worth of subsidies into China’s automotive sector.

China is currently home to the cheapest battery electric vehicles on the planet and could potentially undercut foreign carmakers in their markets if it begins exporting its affordable electric cars at current prices. However, as German carmakers are particularly reliant on the Chinese market, they have voiced their opposition to tariffs on Chinese imports for fear of reprisals by Beijing. According to BMW CEO Oliver Zipse, passing such measures would be akin to shooting oneself in the foot.

BMW currently produces the iX3 as well as Mini EVs in China and imports them into the European Union. Furthermore, China is BMW’s largest market and generated close to one-third of its sales in Q1 2024. For these automakers, China is a major lifeline that cannot be disrupted.

Zipse claims that the EU’s auto sector doesn’t require protection and that major carmakers on the continent enjoy industrial advantages gained from operating internationally. As such, import tariffs on Chinese imports could “easily endanger” this advantage, he says.

Other top German automakers, including Mercedes-Benz and Volkswagen, also draw a significant portion of their revenue from the Chinese market, and Volkswagen has already warned that levying tariffs on Chinese imports carries the risk of retaliation. China’s dominance in the EV supply chain, particularly in the mining and processing of EV-battery raw materials, means that any retaliation from the east Asian nation has the potential to affect the EU’s entire burgeoning EV industry.

It remains to be seen how China-made models from entities such as Tesla Inc. (NASDAQ: TSLA) will be treated should the EU impose sanctions on electric vehicles made in China, and the likely impact of any reprisals China chooses to enforce.

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