The EU Taxes Vehicles from China that its Own Companies Make

One wonders how idiotic tariff policy can get. Competition is stiff between Biden, the EU, and Trump.

German auto manufactures are struggling against an onslaught of cheap EVs from China. One might think that would be welcome given preposterous Green demands, but its not.

Since the European car makers are struggling in Europe, they wert to China where production costs are cheaper. The EU does not like that either, so it is taxing vehicles made in China by the European manufacturers.

Speed Limit for German Cars

Eurointelligence comments on the the plight of the German auto industry in Speed Limit for German Cars

The decline of the German car industry has already started – albeit from a very high level. The three top car makers, VW, BMW and Mercedes have seen a fall in joint first-quarter sales from 18.5m in 2019 to 15.5m this year. They never recovered from the pandemic. But the decline continues at a slow pace. During the first quarter, sales declined by 2%. Profitability was also down, but it is still high in total – the profit margins are 7.4%. Kia has the highest profits margins, at 13.1%. Despite the decline, Mercedes remains the most profitable European car maker in Europe, ahead of Stellantis. Tesla’s profit margin fell from 11.4% to 5.5%, perhaps the clearest sign yet that the global car industry is moving towards a lower-margin era.

VW recently announced is was planning to build a €20,000 electric car to be able to compete with cheap Chinese imports. We think it is possible for them to succeed commercially with such a product. But there is a cost too. The margins on such a car would be lower than on current fuel-powered cars. The bigger impact will be on the supply industries. The trickle-down profit margins that permeated through German industry will be a thing of the past. The new cars will have fewer components, and fewer German-made components. This is the reason why the decline in cars constitutes a decline in industry and in the economy – to the extent that countries depend on it. Germany is one of those.

In addition to the above secular decline setup, EU tax policy just made matters worse.

EU Tariffs on China EVs to Reach as High as 48%

Bloomberg reports EU Tariffs on China EVs to Reach as High as 48% With New Levies.

The European Union will impose additional tariffs on electric cars shipped from China starting next month, taking levies to as much as 48% in a move that further escalates trade tensions and adds to the cost of buying an EV.

The bloc formally notified carmakers including BYD, Geely and MG owner SAIC of the charges on battery-electric cars due to be implemented around July 4, the European Commission said, following an investigation of subsidies that started last year. China’s EV manufacturers have been pushing more aggressively into Europe amid a domestic price war and years of building a lead in the technology.

Aside from SAIC’s top rate, BYD will have to pay an additional 17.4% levy, and Geely — which owns Volvo Car AB — faces an extra 20% charge. While the probe targeted Chinese-owned EVs, Western carmakers including Tesla, BMW and Renault that produce in China and ship to the EU also face higher costs. Those cooperating with the probe are set for extra charges of 21% based on a weighted average.

The EV Tariff Wars Get Crazier

The Wall Street Journal chimes in with EV Tariff Wars Get Crazier

Whatever else you say about the European Union, you have to admit its leaders have a sense of humor. Mere days after voters across the Continent rebuked Brussels in part for its expensive climate policies, the EU announced it will make the electric vehicles it’s forcing Europeans to buy even more expensive.

In this case Europe is mostly hurting itself. Brussels complains that Beijing offers generous subsidies to Chinese EV manufacturers, which is true. Politicians in Europe and the U.S. fret that China’s heavily subsidized battery and EV industries will push Western companies out of business as the drive toward mass EV adoption accelerates.

But Western auto makers are in this fix because those same politicians are forcing consumers to buy EVs. Brussels last year required that all new cars and vans be zero-emission by 2035. As more households down the income ladder are required to buy EVs, the market naturally will become more price sensitive and China’s cost advantages will increase.

So Europe’s car makers have shifted production to China instead. About half of China’s total EV exports last year were produced by Tesla or joint ventures between European and Chinese firms. During the same span, fewer than 10% of China-made EVs imported into Germany—Europe’s largest auto market—bore a Chinese brand. The rest were Teslas or joint-venture products. This, as well as concern about Chinese retaliation, explains why German auto makers oppose the EU tariffs.

All of this is a classic illustration of how one policy blunder begets another, which begets another, and then another. EV mandates force consumers to buy cars that costly European climate policies force manufacturers to make in China. Then Europe imposes tariffs on those EV imports, raising prices for the EVs it forces companies to make and consumers to buy. This is the definition of economic masochism.

Tariffs Won’t Halt BYD’s Advance

CNN assesses Tariffs Won’t Halt BYD’s Advance

After months of investigation, the European Union has announced additional tariffs on electric vehicles (EV) imported from China, because of what it sees as Beijing’s unfair support for companies that undercut European carmakers.

For market leader BYD, which vies with Tesla as the world’s top producer of battery electric vehicles, there’s still space for it to grow in Europe, even with the additional duty, according to Gregor Sebastian, a senior analyst with the Rhodium Group.

Facing the lowest additional levy of 17.4%, BYD could emerge as a relative “winner,” he said. Duties at this level could even allow BYD to cut its already competitive prices to gain market share in Europe.

“BYD is already building a factory in Europe, is likely to still profitably export to the EU even with 17% duties, and can export plug-in hybrids without additional duties,” Sebastian said. The new tariffs only target battery EVs.

Rhodium said in April that BYD’s European profits are 45% higher than in China, meaning that market will still remain highly attractive even after the new tariffs are imposed.

What About Tesla?

For Tesla (TSLA), which uses China as its base for global exports including to Europe, the situation is also tricky.

The European Commission said Wednesday that the EV giant may receive an individually calculated duty rate at a future stage following a request by the carmaker.

In a message posted to its website in several European countries Thursday, Tesla said it expected to have to raise prices for its Model 3 from July 1 because of the new tariffs.

Sebastian said additional duties above 21% would likely render Tesla’s exports from China to the EU uncompetitive.

Who’s the Winner?

That’s the big question at the moment.

Let’s seek an opinion from a leading authority, the stock market.

Please note Chinese EV Stocks Surge After EU Slaps Up to 38% Additional Import Tariffs

Chinese EV-maker BYD, which was the top gainer on the Hang Seng Index, jumped 8% during morning trade but pared some gains to trade at about 6% in the afternoon. Geely was up about 4% initially, while counterparts Nio and Li Auto saw their shares climb about 1.5%.

Joe Biden’s Position on Tariffs

The Above Tweet was from June 11, 2019.

On May 14, 2024, Biden changed his tune.

In case you are wondering, it’s a 100% tariff on BYD.

Also see Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them

Astute readers will immediately notice the title of this post makes no sense. It’s not supposed to. But it is exactly what President Biden is doing.

Biden’s Brilliant Plan

As with the EU, Biden insists you buy an EV and he wants you to pay the most possible for it (no cheap BYD vehicles).

On top of it, Biden has a Green mandate with no infrastructure in place, no way to produce the needed batteries with US materials, and no way to get the minerals given China has a 90 percent monopoly on nearly all of the processing and most of the mining.

Nearly all of the critical materials are mined or refined in China. Yet Biden just blocked production in the US.

It’s a brilliant plan, if the goal is higher inflation.

The saving grace is Trump is likely to win the election, ending much of the Green madness.

Trump’s Tariff Madness

Unfortunately, although Trump will end Green madness, he won’t end Tariff madness. Trump proposes high tariffs across the board with a 60 percent tariff on China.

It remains to be seen who has the most damaging tariff policy. Is it Trump, Biden, or the EU?

I expect a recession will cool prices this year. But look further ahead. There are huge inflationary problems brewing everywhere due to terrible trade policy.

China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

On May 17, I commented China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

Germany is feeling the pinch of China shock. But the US is on deck too. A global trade war looms.

We are right on schedule for China Shock. And it will happen no matter who wins the election.