By Wang Kai

“Such a tariff system causing extreme discrimination is almost unprecedented”, claimed Hungarian economy minister Márton Nagy in a ministry statement, referring to the newly unveiled measures of the European Commission earlier this month to levy provisional tariffs on all-electric cars imported from China.

If no solution is reached with the Chinese side, extra duties on EVs imported from China would start from around July 4th, with tiered tariffs ranging from around 17.4% to 38.1%. No reasons were specified from the EU for the differentiation.

The hardest hit would be Shanghai-based SAIC, owner of MG, facing an additional tariff of 38.1 percent. “The measures not only violate the principles of market economy and international trade rules, but may even have a greater adverse impact on the stability of the global automobile industry chain and China-EU economic and trade cooperation”, the company opposed in a statement.

Unlike the usual EU probes that were driven by industry players, the investigation against Chinese EV companies was initiated in the absence of a complaint from the EU industry, with its intention laid bare in a statement that stressed presuppositions of “illegal subsidisation” from China and threats of “economic injury to EU BEV producers”. The largest exporters of EVs from China such as Tesla were also overlooked in the probe, with target solely directed against local Chinese companies.

According to China Chamber of Commerce for lmport and Export of Machinery and Electronic Products (CCCME), the defender authorized by a dozen Chinese automakers in the EU probe, information involving corporate privacy, trade secrets, and core technology such as battery formulation was required from the Chinese companies in the EU investigation.

A rod for one's own back

Ironically, it is within the EU where backlash first comes from.

“European and even some North American manufacturers are successful on the Chinese market, and we have to take that into account”, German Chancellor Olaf Scholz cautioned in mid May with a view to the EU's deliberations over imported Chinese electric cars.

According to statistics from the European Federation for Transport and Environment, among the 300,000 units of made-in-China all-electric cars sold across the EU last year, more than half are Western brands with operations in China, such as Tesla and BMW.

Germany, with an automotive industry chain that has already been deeply interlocked with China, represents one of the hardest hit EU members.

BMW Chairman Oliver Zipse referred to trade restrictions on Chinese car manufacturers “an absurdity”, calling for “a 360-degree perspective” considering that “20 percent of all BEVs (battery electric vehicles) sold in Europe last year came from China; well over half were western brands, including BMW”.

It could "shoot yourself in the foot", he warned the EU.

Ola K?llenius, CEO of Mercedes-Benz, took a step further and urged the EU to cut, instead of raising, tariffs on Chinese EVs to pressure carmakers in Europe to make better cars.

“We as companies are not asking for protection”, he said to Financial Times, stressing the need for “a level playing field” and “building economic win-win situations”.

Johan Annell, Partner and General Manager Beijing of ARC Group, an international advisory firm, said that in the long tern, such protective measures can’t truly “protect” the industry. “Consumers are not demanding to get cars quick and local. What is perhaps going to happen is reduced competitiveness and fewer jobs in the automotive sector in Europe”, he said.

“Trade war is not the future of big industrial countries... As far as tariffs are concerned, we are in agreement that it is a bad idea to dismantle global trade”, Swedish Prime Minister Ulf Kristersson said at a press conference in Stockholm.

A futile attempt

Opposite to its wishes, the hogtying EU punity may fail to meet the desire of constraining its Chinese counterparts, but spur Chinese investment overseas instead.

Of the approximately 10 million electric vehicles China produced last year, about 470,000 were exported to the European Union, accounting for a meagre 5%. Despite the lingering threat of higher tariffs since the anti-subsidy probe started over half a year ago, registrations of Chinese-made electric cars in Europe rose 23 percent from January to April this year compared with the same period last year, reported the Financial Times.

“The EU tariff is within people’s anticipation for quite some time due to the large surge in Chinese exports. It's not a surprise. The tariffs would propel Chinese companies to shift attention to South America, the Middle East, and other markets”, Johan Annell said.

“Still, they would sell in substantial volumes in Europe, only with lower margins”, he added that joint ventures and acquisitions would likely to pace up in response to the potential new tariff.

Business integration has already accelerated. China’s Leapmotor has started EV production in Poland jointly with Stellantis, with sales expected to begin in nine European countries later this year. In April, Chery Automobile signed an agreement with Ebro-EV Motors to build an EV joint venture in Barcelona. Earlier, top EV seller BYD announced a new energy passenger vehicle factory to be set up in Hungary as an expansion to its existing bus and forklift operations, and EV battery maker Gotion stroke a deal with InoBat to build a plant in Slovakia following its presence in Germany.

According to a research by Rhodium Group, Chinese EV investment abroad is expected to remain strong this year, but to shift from battery investment to EV manufacturing in Europe, Latin America, and Asia.

“It appears that Chinese companies could emerge as the main beneficiaries of the bans and nationalization plans. In comparison to global rivals, these firms often have closer ties to downstream customers and financial resources to invest in local refining. By increasing entry barriers, the new regulations could further cement Chinese firms’ global dominance”, the report notes.