EU's tariffs may stall SAIC's exports of EV but do little to keep BYD at bay, analysts say

The European Union's proposed import tariffs on electric vehicles (EVs) will do little to keep Chinese brands at Europe's gate, as the most innovative and cost-effective assemblers like BYD can overcome any hurdle, analysts said.

"The tariffs will only affect Chinese brands' exports to Europe in the near term," said Guotai Junan Securities analyst Wu Xiaofei.

That is a relief for an industry that had been awaiting the EU's nine-month anti-subsidy investigation, which culminated this week in punitive tariffs ranging from 17.4 per cent to 38.1 per cent on pure-electric cars made on the mainland.

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Unlike the quadrupling of tariffs announced by the White House last month, whose impact appears to be minimal because few Chinese-made EVs are sold in the US, potential curbs by the EU have been weighing on industry officials and analysts since the investigation started last September.

The 27-member EU, with a combined population of 450 million people, is particularly important for China's EV exporters amid a crushing price war at home. The EU is poised to become China's biggest automotive export destination by 2030, with 2 million vehicles - about 20 per cent of the continent's market - sold annually, according to a 2023 forecast by the Swiss bank UBS.

One in every three China-made EVs shipped abroad last year was bound for the trade bloc, where 2023 shipments totalled 478,000 units, according to MarkLines.

EU tariffs cause headache for SAIC

The tariffs are unevenly applied on the dozen Chinese brands that ship EVs to the EU. Shanghai Automotive Industry Corporation (SAIC), the Chinese partner of Volkswagen (VW) and General Motors (GM) will bear the brunt, being subject to the top 38.1 per cent tariff, while every other brand from BYD to Volvo's owner Geely Automotive Holdings face tariffs of no more than 21 per cent.

Technically, the tariff on SAIC also applies to the Volkswagen and GM vehicles made in China, even if they are virtually all assembled for the Chinese market.

"SAIC's MG brand may suffer the most as its sales in the [EU] account for nearly 10 per cent of the global total, versus just 1 per cent for BYD," said Joanna Chen, a Bloomberg Intelligence analyst.

SAIC, which shipped 83,000 electric cars to Europe last year under the MG and Maxus badges, said on Thursday that the EU's tariffs might have significant disadvantages for economic and trade cooperation. China's largest carmaker became the owner of the MG brand after it acquired Nanjing Auto in 2007, which paid US$105 million to buy the failed British carmaker two years earlier.

SAIC's shares fell 1.6 per cent on Thursday in Shanghai amid a retreating market, as the tariff received by the city's flagship manufacturer was higher than the 30 per cent expected.

"Even though I can understand the EU's underlying intention, I do not consider this to be the best way forward," according to a LinkedIn post by VW China's chief executive Ralf Brandsatter. "Countervailing duties are generally not suitable for strengthening the competitiveness of the European automotive industry in the longer term. Rather, they are merely a quick-fix 'medicine'."

Will BYD emerge unscathed from EU's tariffs

BYD, which received a rave review from the German press last July on its Dolphin compact EV, came away unscathed. The world's largest producer and seller of hybrid and pure-electric vehicles faces a 17.4-per cent tariff. Shares of the Shenzhen-based carmaker jumped by 5.8 per cent on Thursday in Hong Kong.

The rates will be added to the existing 10 per cent import tariff on the EVs. BYD will be forced to pay 27.4 per cent in total on its Chinese-made vehicles bound for Europe when the new curbs take effect in November.

The extra 17.4 per cent tariff to be levied on BYD cars will not turn out to be detrimental to the company's sales in Europe because of its significant cost advantage over its rivals, according to UBS' analyst Paul Gong.

In a teardown report published last September, the bank found that BYD's Seal fully-electric sedan had a sustainable 25 per cent cost advantage over Tesla's Model 3 in Europe even factoring in ­growing trade barriers such as the tariffs.

"BYD is likely to be able to absorb most of the burden from EU import duties, since its cars carry peer-beating profitability and are subject to a 17.4 per cent added tariff versus the 21 per cent industry average," said Chen.

How do Geely, Xpeng, Nio fare under EU's tariffs?

Geely, the Hangzhou-based carmaker, is also coming away with nary a scratch. The assembler sold 364,569 EVs in the EU last year, including its Volvo marque, which remains popular on the continent. Geely's shares advanced 1.7 per cent in a rising market in Hong Kong after the tariffs were announced.

Xpeng, one of the first EV makers to export to Scandinavia, fell 1.5 per cent in Hong Kong. Volkswagen last July paid about US$700 million for a 4.99-per cent stake in Xpeng for the Guangzhou-based upstart to make EVs under the VW badge. The two mid-size EVs are meant for China's domestic sales, scheduled for 2026.

Nio, the Shanghai-based EV maker that owns a Nio House lifestyle cafe and showroom in downtown Oslo, fell 0.9 per cent in New York trading, after rising by as much as 3.6 per cent.

Will EU's tariffs drive Chinese carmakers to localise in Europe?

Ultimately, the EU's import tariffs may encourage Chinese carmakers to accelerate the pace at which they are localising their production facilities in continental Europe, Wu predicted.

BYD already has a €500 million (US$538.3 million) EV plant scheduled for opening next year in Szeged in the south of Hungary, an EU member. Contemporary Amperex Technology Limited (CATL), Xinwanda Electronics and a dozen Chinese battery suppliers are already investing in the entire supply chain for EVs in the country.

"I am sure that Chinese manufacturers will be only successful in Europe if they produce there," Brandsatter wrote. "They will then also have to work with European wages, energy prices, parts costs and trade unions," he wrote. "In this way, we not only create a level playing field but also greater prosperity for Europe."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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