German automobile manufacturers such as BMW, Mercedes-Benz and Volkswagen could be badly hit by retaliatory tariffs because they all have massive production plants in China.
Germany could be trying to stop the European Union from putting increased tariffs on Chinese electric vehicles (EVs), that are reportedly due to come into force on 4 July, or at the very least, water them down.
The European Union has recently revealed that it could implement tariffs of up to 38.1% on Chinese EV makers. This is following an investigation launched by the EU into several manufacturers, following claims that the Chinese government had heavily subsidised them. This allowed the manufacturers to sell their vehicles at vastly reduced prices in the EU.
Chinese EV manufacturers such as BYD, Geely and SAIC Motor are expected to be hit by the EU action.
In turn, China has already hinted at enforcing tariffs on vehicles made in the EU with large engines, which could potentially be disastrous for companies such as BMW, Mercedes-Benz and Porsche.
German Chancellor Olaf Scholz has already highlighted that the EU’s tariffs could have long-reaching consequences, especially when it comes to jobs being created in Germany.
In a recent statement reported by Associated Press, Scholz said: “Isolation and illegal customs barriers- that ultimately just makes everything more expensive, and everyone poorer. We do not close our markets to foreign companies, because we do not want that for our companies either.”
German manufacturers like BMW, Volkswagen and Mercedes-Benz could also be impacted in a few other ways, as they have set up massive automobile production plants in China, and benefit from Chinese subsidies and grants, such as cheaper land and relatively relaxed tax and other regulations.
In case of any retaliatory tariffs, German automobile manufacturers could potentially see these benefits being withdrawn. Furthermore, most German automobile manufacturers see the majority of their current sales coming from the Chinese market, so in the event of an escalating trade war, these sales may also be hit.
Europe could struggle to hit net zero targets without Chinese EVs
European consumers are increasingly choosing Chinese electric vehicles over European ones, because of their affordability and inducements such as free charging for two years, dash cameras and more.
With the increasing cost of living in the last couple of years, European EVs have been out of reach for most consumers due to their cost. As such, Chinese EVs could be one of the few ways that Europe may still be on track to meet its net zero goals.
Thom Groot, chief executive officer (CEO) of The Electric Car Scheme said in an email note, “The last minute attempt by Germany to halt, or soften new tariffs for EVs from China should be welcomed by consumers. The latest data from the International Energy Agency (IEA) makes it plain that we cannot hit our EV targets without the help of Chinese manufacturers.
“57% of all new Battery Electric Vehicle registrations come from China, and yet there is a significant pushback to allowing these vehicles into UK and European markets. If we are serious about hitting our 100% goal by 2035 and overall net zero ambitions, we should be embracing this technology input, not shying away from it.
“While there have been discussions around national security and cyber attacks involving Chinese EVs, tariffs, which punish less well-off consumers most, are patently not the answer. Our research shows that for 68% of people, cost is the biggest barrier to getting an electric car.
Jochen Stanzl, chief market analyst at CMC Markets said, “The European Union may have shot itself in the foot with its tariffs against Chinese automakers. At up to 38%, these tariffs are much lower than the 100% imposed by the US government.
“They are not high enough to shield Volkswagen, BMW and Mercedes from low-cost competition from the Far East as they transition from internal combustion engines to electric vehicles. It’s understandable that Germany tries to block these tariffs, as they could do more harm than good.
“With tariffs so low, German automakers would find it even more challenging to compete with the Chinese rivals. While automotive stocks dragged the German DAX index down significantly yesterday, there was a rally among the stocks of Chinese EV manufacturers. It could get even worse: the Chinese government might now take retaliatory measures. Germany tries to break this potentially damaging feedback-loop.”
Russ Mould, investment director at AJ Bell said, “It may be that the EU would be better off focusing on how to boost demand for EVs at a time when it seems to be flattening off, as Umicore’s profit warning this week suggested.
“Consumers seem wary of the cost of EVs, range capabilities, the availability of charging infrastructure and also the issue of what to do with the battery once an EV is no longer needed.
“Addressing all of these issues proactively could perhaps be a better course of action than opening up another trade war, especially as the EU is trying to promote EV adoption and phase out the internal combustion engine (ICE) by 2035. Making cheap EVs more expensive through tariffs is a strange way of going about that.”
