China urges EU to reverse 'wrong direction' on EV tariffs

Beijing hopes the European Union will reconsider tariffs on Chinese electric vehicles and stop going further in the "wrong direction" to shield its auto industry from competition, according to state news agency Xinhua.

The reaction from China and others embroiled in the dispute, including European and Chinese car makers as well as some industry groups, points to clear opposition to the EU decision and an eagerness to de-escalate the situation.

China said it would take measures to safeguard its interests after the European Commission announced on Wednesday it would impose extra duties of up to 38.1% on imported Chinese electric cars from July. That equates to billions of euros of extra costs for the carmakers, according to Reuters calculations based on 2023 EU trade data.

"In light of their economic structure and sheer size, China and the EU are best served by teaming up on major economic and trade issues," Xinhua said in a commentary.

"It would be more cost-effective for the EU to draw on China's advantages in order to develop its own EV industry."

The EU move comes less than a month after Washington revealed plans to quadruple duties for Chinese EVs to 100%.

Brussels said it also would combat Chinese subsidies with additional tariffs ranging from 17.4% for BYD to 38.1% for SAIC, on top of the standard 10% car duty. That takes the highest overall rate to nearly 50%.

China's auto industry, a mix of state-owned and private firms, has cost advantages over foreign competitors in part because of government subsidies and the nation's dominance of battery-minerals refining.

The EU provisional duties are set to apply by July 4, with the investigation due to continue until Nov. 2, when definitive duties, typically for five years, could be imposed.

Some Chinese EV makers and suppliers have started to invest in European production, which would avoid tariffs.

CHINESE EV SHARES MIXED

Chinese EV car maker stocks mostly shrugged off the news, which was expected. The Hong Kong-listed shares of BYD surged more than 7% in early trade, on track for their biggest one-day percentage gain since November 2022. Its Shenzhen shares rose more than 5%.

"The EU tariff hike result is slightly positive for BYD vs our previous tariff expectation of 30%, which improves BYD's export growth visibility into 2Q/3Q24. BYD's EU tariff is lower than other China players, which bodes well for its market share gain in EU," Citi said in a research note.

Geely Auto climbed more than 3%, Xpeng reversed early gains to slip 0.7%, while Nio rose 1.3%. Leap Motor surged 3% and Great Wall Motor's Hong Kong shares eased 1.2%. In Shanghai, shares of SAIC Motor fell 2.3% while Great Wall's Shanghai stock was flat.

In contrast, shares in some of Europe's biggest carmakers - which make a big portion of their sales in China - fell on Wednesday due to fears of Chinese retaliation.

While European automakers are being challenged by an influx of lower-cost EVs from Chinese rivals, there is virtually no support for tariffs from the continent's auto industry.

Some of the biggest opponents to the tariffs include Europe's biggest automakers such as BMW, Volkswagen, Stellantis, and Mercedes Benz.

German automakers in particular are heavily dependent on sales in China and fear retribution from Beijing. European auto firms also import their own Chinese-made vehicles.

European Commission President Ursula von der Leyen has repeatedly said Europe needs to act to prevent China from flooding the bloc's market with subsidised EVs.

Trade and economic relations between the EU and China are at a crossroads, and it is crucial for the EU to demonstrate a strategic and long-term vision, Xinhua said.

The regional bloc seemed to have left some room for the two sides to continue their consultations to find a proper solution and avoid the worst scenario, the commentary added.

"It is hoped the EU will make some serious reconsideration and stop going further in the wrong direction," it said.