Despite all the warnings from the industry, the European Commission is likely to announce punitive tariffs on electric vehicles from China this week.

The EU Commission under Ursula von der Leyen accuses the People's Republic of distorting competition with subsidies for e-car manufacturers. Analysts expect tariff surcharges of ten to 25 percent on top of the current general tariff rate of ten percent. There is little support for this from the European car industry. German car manufacturers in particular are heavily dependent on sales in China - and therefore fear retaliatory measures from Beijing.

Top managers from BMW, Mercedes and Volkswagen have warned against imposing import duties on vehicles from China. According to HSBC estimates, German car manufacturers generate 20 to 23 percent of their global profits in the world's second-largest economy. In addition, a large proportion of the cars imported into the EU from China come from European manufacturers.

CHINA LEAVES EU IN THE DARK ABOUT REACTION

Commission President von der Leyen believes Europe is under pressure to act to prevent China from flooding the European market with subsidized e-vehicles. According to the Commission, prices are generally around 20 percent lower than models manufactured in the EU. The EU would thus follow the example of the USA, but would probably impose much lower punitive tariffs on imports from Chinese manufacturers such as BYD and Geely as well as Western manufacturers such as Tesla, which export cars from China to Europe. The USA recently quadrupled the tariffs on Chinese electric vehicles to 100 percent.

China has reprimanded the EU over the anti-subsidy investigation, insisted on cooperation and lobbied individual EU countries. However, the People's Republic has left the EU in the dark about how it would react to the tariffs. "If provoked, the response and fallout could lead to a trade war, which would be devastating for a region that is still heavily reliant on Chinese-dominated supply chains to meet its ambitious climate targets," said Will Roberts, head of automotive research at consultancy Rho Motion.

PROVISIONAL DECISION LEAVES TIME FOR NEGOTIATIONS

Europe's carmakers see themselves challenged by cheaper e-cars from Chinese competitors. And yet there is virtually no support from the car industry on the continent for the tariffs. Each additional ten percent surcharge on top of the existing tariff would cost EU importers of Chinese e-vehicles around one billion dollars, based on trade data for 2023. This would be a further blow to a sector that is already struggling with declining demand and falling prices at home. And it is foreseeable that these costs will rise even further as China's e-car manufacturers expand their exports to Europe. The EU Commission has predicted that the share of Chinese brands in e-vehicles sold in the EU has risen from less than one percent in 2019 to eight percent. By 2025, the market share could reach 15 percent.

Imports of e-vehicles manufactured in China have so far been dominated by the western car manufacturers Tesla, Renault, Dacia and BMW. Chinese export models to Europe include the Atto 3 from BYD, the MG from SAIC and the Volvo from Geely.

EU punitive tariffs would initially only come into force provisionally at the beginning of July. They could apply retroactively for the previous 90 days. The tariffs would be discussed with manufacturers and EU states until the end of October. Only then would it be decided whether definitive tariffs would be introduced, usually for five years. This would leave time for a possible agreement between Brussels and Beijing. Chinese executives hope that such talks could soften the blow.

(Written by Holger Hansen, edited by Jörn Poltz.If you have any queries, please contact our editorial team at berlin.newsroom@thomsonreuters.com (for politics and the economy) or frankfurt.newsroom@thomsonreuters.com (for business and markets).)

- by Philip Blenkinsop