Europe's taxes on Chinese cars will impact us too

The European Union is opening a trade war with China that is expected to shake up the global automotive market. After a year of investigations into heavy allegations of subsidy of car exports from China to Europe, especially electric and plug-in cars, which significantly reduce their price compared to European manufacturers, the European authorities announced the new tariff rates that will be imposed on Chinese companies.

The tariff rate will not be uniform and will vary according to the subsidy rate received by each manufacturer. SAIC, which sells MG and Maxus brands in Europe and Israel, will receive the highest rate of 38.1%. Geely, which sells Wey and Ora in Europe alongside Volvo and Polestar which it owns, and also Geometry C in Israel, will be charged 20%, while BYD will be charged 17.1%. A 21% tariff will be imposed on other manufacturers who cooperated with the EU investigation and 38.1% on those who did not.

Tariffs will also be imposed on cars that European manufacturers build in China and export from there to the continent, such as BMW iX3, Dacia Spring, and Volvo EX30. The EU announcement stated that Tesla, which produces Model 3 models for Europe in China, will continue to receive its own tariff rate, and that the new tariff rates will be added to the 10% already imposed in EU countries on cars produced in China.

The companies were given a number of days to submit their responses, and the increased customs will be collected starting from July 5th.

In recent years, there has been a significant increase in sales of Chinese-made cars in Europe, which rose from 209,000 in 2021 to 300,000 in 2022 and to 440,000 in 2023. The European Union is concerned that a minor response on its part will lead to the resurgence of the local solar panel industry crisis following the penetration of cheap panels from China a decade ago, while the automotive industry and its suppliers are one of the largest employers in Europe, especially in key countries such as Germany and France.

The Chinese response: Even before the announcement, Chinese authorities made it clear that such a move would lead to equivalent taxes on European cars, in what has become the world's largest car market. For example, Volkswagen is battling with BYD for leadership in the Chinese car market, which is also the world's largest market for German luxury car manufacturers. Most European cars sold in China are also produced there and will be exempt from customs, but luxury models, like Mercedes S-Class, BMW 7 series, and Porsche models are imported into the country. It is no wonder that the German automotive manufacturers' association opposed the move and warned of an impending trade war.

Chinese manufacturers are already preparing to produce in Europe: BYD has already announced the establishment of a factory in Hungary, Chery in China, and Leapmotor models will be assembled at the Fiat factory in Poland. However, BYD may cancel the launch of its luxury brand in the continent, YungWang, with the electric off-road vehicle U8, which is not currently planned for production in Europe.

MG, the best-selling Chinese manufacturer in Europe, has not yet announced local production, but until the past decade it assembled cars in Britain. Volvo has already announced it will advance the production of the EX30 at its factory in Belgium. Tesla has a factory in Berlin that supplies Europeans with Model Y, but it will need to increase its production capacity in order to meet the demands for Model 3.

Israeli implications: Israel taxes new cars heavily in any case and is not committed to European tax policies. In the short term, this move will increase the attractiveness of the Israeli market to Chinese manufacturers, who held 19% of it in the first five months of the year, 2.5 times their market share in Europe. Their transition to production in Europe will grant them a 7% exemption from customs duties and significantly lower shipping costs, especially if the need to sail around Africa to bypass the Houthi attacks continues. However, this may be offset by higher production costs.

In the long term, Chinese manufacturers may decide to exit the European market, especially smaller manufacturers who will struggle to justify setting up factories on the continent. Since they do not manufacture according to American standards, as Chinese cars have a 100% import duty in the US, they may stop selling in the country, affecting competition in the automotive market.

New customs duty rate:MG: Approx. 38%Tesla*: 21% (estimated)BMW*: 21%Volkswagen*: 20%Smart*: 20%Renault (Dacia)*: 21%Geely: 21%BYD: Approx. 17%

* Foreign manufacturers exporting cars from factories in China to Europe