Due to the EU’s announcement of increased tariffs on Chinese-made electric vehicles, Tesla has announced that it will raise the price of the Model 3 in the European market starting in July, though the extent of the price increase has not been specified.

According to a report from CNBC, Tesla CEO Elon Musk stated on June 13th that the Model 3 price in the European market will be adjusted starting July 1st due to the EU tariffs, without revealing the specific increase.

Per a report from Reuters, the European Commission has announced that, starting July 4th, it will impose tariffs ranging from 17.4% to 38.1% on electric vehicles imported from China. The tariff rates will vary depending on the extent of government subsidies received by each automaker. This measure aims to prevent Chinese manufacturers benefiting from government subsidies from undercutting the market with cheap electric vehicles, thereby harming the EU automotive industry.

It is unclear how much of a tariff will be imposed on Tesla’s Chinese-made electric vehicles. The European Commission stated that Tesla will be subject to an individually calculated tariff rate. Whether Tesla cooperates with the EU authorities’ anti-subsidy investigation will also influence the final tariff rate applied.

Although the EU has decided to impose high tariffs on Chinese electric vehicles, there are still differing opinions among various parties. The German government and automotive industry have reacted most strongly, fearing it could ignite a China-EU trade war.

Per a report from Xinhua citing sources, Tesla’s Shanghai plant is the U.S. car manufacturer’s first gigafactory outside the US, delivered 947,000 vehicles in 2023.

As per a previous report from Barron’s, German Transport Minister Volker Wissing stated that, “The European Commission’s punitive tariffs hit German companies and their top products. Cars must become cheaper through more competition, open markets and significantly better business conditions in the EU, not through trade war and market isolation.”

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(Photo credit: Tesla)

Following an eight-month anti-subsidy investigation, the EU announced on June 12th that it will increase the temporary tariff rate on all Chinese electric vehicle companies from the current 10% to as high as 38.1%. According to a report from CNBC, the European Commission warned that if an agreement on automotive production capacity with China cannot be reached, the new tariffs will be implemented around July 4th.

Per the same report, the European Commission has announced the latest tariff rates, imposing additional tariffs on Chinese electric vehicle manufacturers BYD, Geely, and SAIC Group at rates of 17.4%, 20%, and 38.1%, respectively.

Other companies cooperating with the investigation will be subject to a 21% tariff, while non-cooperating companies will face tariffs as high as 38.1%. American automotive giant Tesla’s electric vehicles produced in China will be subject to a separate tariff rate following the investigation.

As per another report from BBC cited by Commercial Times, nearly 50% of the electric vehicles exported from China to the EU are from Western car brands such as Tesla, Volkswagen, and BMW, with Tesla alone accounting for about 40%. In contrast, the annual sales of Chinese electric vehicle brands in Europe are less than 200,000 units, with a market share of less than 8%, mainly represented by BYD, SAIC Group (which owns the European brand MG), and Geely.

Per a report from the Global Times on June 12th, China’s Ministry of Commerce strongly reacted, expressing discontent on the matter. China, reportedly, will closely monitor the EU’s subsequent actions and take all necessary measures to firmly defend the legitimate rights and interests of Chinese enterprises. The China Association of Automobile Manufacturers also expressed deep regret and stated that the decision is absolutely unacceptable.

Although the EU has decided to impose high tariffs on Chinese electric vehicles, there are still differing opinions among various parties. The German government and automotive industry have reacted most strongly, fearing it could ignite a China-EU trade war.

As per a report from Barron’s, German Transport Minister Volker Wissing stated that, “The European Commission’s punitive tariffs hit German companies and their top products. Cars must become cheaper through more competition, open markets and significantly better business conditions in the EU, not through trade war and market isolation.”

Per a report from Reuters, BMW Group Chairman Oliver Zipse stated that the European Commission’s decision to impose tariffs on Chinese electric vehicles is a wrong way to go. Volkswagen expressed that the European Commission’s decision detrimental to the current weak demand for BEV vehicles in Germany and Europe.

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• [News] EU Reportedly Delays Decision on Imposing Tariffs on Chinese Electric Cars
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(Photo credit: Pixabay)

The European Commission initiated an investigation into Chinese electric cars in October last year, targeting BYD, SAIC Group and Geely, with plans to impose provisional tariffs on new electric cars imported from China. According to previous media reports, the plans were originally scheduled to be announced by June 5th. However, as per Reuters citing sources in a latest report, the new date for announcing the imposition of temporary tariffs has been set for June 10th, after the European Parliament election.

The sources cited in the report also mentioned that the delay was due to last-minute technical issues with the documents. As of now, the European Commission has not provided comments on this matter.

Yet, the same report further noted that the European Commission has formally warned the three Chinese electric car companies under anti-subsidy investigation that the data they provided for the investigation was insufficient.

According to trade data from 2023, for every additional 10% tariff imposed by the European Union on top of the existing 10%, Chinese electric car exporters would lose approximately $1 billion.

Reuters reported that past subsidy investigations launched by the European Union on other products imported from China resulted in additional tariffs ranging from approximately 9% to 26% for related companies, while the tariffs on the Chinese electric car companies may possbly fall between this range.

The report also indicated that China may be preparing alternative plans for future negotiations. If enough EU members oppose the temporary tariffs after four months, there might be challenges to the EU’s temporary tariffs, possibly leading to their cancellation.

According to an earlier analysis by Trendforce, with China’s subsidies gradually phasing out and the increasing market penetration of NEVs in the country, the growth rate of China’s NEV market is starting to slow. This, coupled with the growing demand for electric vehicles in overseas markets, is prompting numerous Chinese automotive brands to expand internationally. But they may have to counter various challenges, as countervailing duty investigation being one of them.

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(Photo credit: Pixabay)

Due to escalating geopolitical risks, Tesla is reportedly requesting its suppliers to begin manufacturing components and parts outside of China and Taiwan as early as 2025.

According to a report from Nikkei News on May 23rd, citing sources from the supply chain, suppliers of printed circuit boards, panels, and electronic controllers for models sold outside of China have recently received requests from Tesla to avoid China and Taiwan. The reason cited is the increasing geopolitical risks in the Greater China region prior to the U.S. presidential election. The objective of this move is to create alternative supply sources for markets outside of China to avoid disruptions in the supply chain.

Reportedly, a Taiwan-based supplier of Tesla revealed that Tesla wants all components to be OOC, OOT, meaning ‘out of China’ and ‘out of Taiwan.’ Allegedly, they hope this proposal can be implemented in new projects next year. Tesla is said to have made this request before the US government increased tariffs on Chinese electric cars fourfold to 100%.

Nikkei News’ report also indicates that Tesla has discussed this issue with suppliers in Japan, South Korea, and other Asian countries. A component supplier source cited in the same report mentioned that his company has responded to Tesla’s request by expanding production in Thailand. The source claimed that for many customers like Tesla, the “China Plus One” strategy—which involves diversifying investments beyond China into other countries—also includes avoiding Taiwan.

The report further cited sources, indicating that American car manufacturers such as General Motors and Ford are also instructing their suppliers to explore on relocating their electronic production lines away from China and Taiwan. However, they have not formally made requests similar to Tesla’s.

Another source cited in the report remarked that Tesla is the most proactive among American automakers in wanting to avoid risks associated with China and Taiwan, but implementing the OOC and OOT strategy is indeed challenging and costly.

Tesla has previously placed orders with TSMC for numerous chips related to electric vehicles. For instance, the supercomputer chip “D1” is utilizing TSMC’s 7nm technology along with advanced packaging processes.

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(Photo credit: Tesla)

On May 14, 2024, the US administration announced that it would increase tariffs on Chinese new energy vehicles from 25% to 100%. Additionally, tariffs will be imposed on Chinese products such as batteries, chips, medical supplies, and critical mineral raw materials, affecting an estimated total value of USD 18 billion in Chinese imports.

The United States believes that China’s substantial state subsidies and excess production capacity allow Chinese products to penetrate the European and American markets at low costs.

TrendForce Insights:

1. Impact of Tariff Increase on Chinese Electric Car Imports in the US Market Is Minimal

According to sales statistics from the first quarter of 2023 to the first quarter of 2024 in the US electric car market, only Geely, among the Chinese electric car groups actively operating in the US market, holds a market share of merely 2%.

By the first quarter of 2024, this share had further declined to just 1%. In fact, Chinese automakers, anticipating such measures, have already shifted their focus away from the US market to regions such as Europe, Southeast Asia, Latin America, and Russia. Therefore, the current increase in tariffs is expected to have minimal impact on China’s new energy car industry.

2. Consumers Focus on Electric Car Prices, Not Nationality

The affordability of Chinese electric cars stems from China’s long-standing high level of self-sufficiency in the entire electric vehicle supply chain, from complete vehicles to components, especially in the battery sector, which accounts for the highest proportion of total vehicle costs.

Coupled with government subsidy policies aimed at attracting consumers to purchase electric cars and increasing the overall market size, this further enhances the cost advantage of various components.

Additionally, according to data released by Gallup in April 2024, only 36% of people with an annual income below USD 40,000 would seriously consider purchasing an electric car, while those with incomes between USD 40,000 and USD 100,000 or more have a purchase intention of 45-50%.

Therefore, the high cost of electric cars remains the primary reason why consumers are currently unwilling to switch to electric cars, rather than being a matter of the car’s “nationality.”

3. Is the Decoupling Strategy for Electric Vehicles from China a Cure or a Poison?

The US administration’s decision to increase tariffs can protect the US fossil fuel car industry in the short term. With consumers unable to access cheap Chinese electric cars, they may opt for US fossil fuel cars.

While this measure may prolong the life of the US automotive industry chain, it could hinder both US and global carbon reduction goals and reduce the international competitiveness of US car manufacturers in the electric vehicle sector. 

Stellantis CEO Carlos Tavares has stated that increasing tariffs will not truly protect his company, and the only option is to continue fighting. Therefore, while higher tariffs serve as a protective shield for the domestic automotive industry chain, car manufacturers ultimately still need to face the harsh reality of global market competition.

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