U.S. tariffs on Chinese electric vehicles increased to 100% Expert: There is basically no impact on Chinese car companies

High beams

2024-05-15 15:51Published on the official account of Beijing Tencent Automobile's "High Beam" column

Tencent Auto "High Beam" Author Lin Keying

The long-rumored U.S. tariffs on China have finally come to fruition, with the tariffs on electric vehicles surging from 25% to 100%. On May 14, the White House issued a statement announcing that the Biden administration would continue to maintain the tariffs implemented by its predecessor, the Trump administration, and impose tariffs on other Chinese goods. The new measures will affect $18 billion of Chinese imports, including steel and aluminum, semiconductors, batteries, critical minerals, solar cells and cranes, the statement said.

In terms of automobiles, in addition to electric vehicles, which have the most significant tax increases, the policy also announced an increase in tariffs on lithium-ion electric vehicle batteries and other battery components from 7.5% to 25%, and an increase in photovoltaic cells used to make solar panels from 25% to 50%. In addition, Biden's previously announced steps to raise tariffs on some steel and aluminum products will also take effect this year.

"I don't think it's going to have an impact." Cui Dongshu, secretary general of the National Passenger Car Market Information Association, told Tencent Auto's "High Beam" that although at first glance, the tariff increase is rapid, but at present, no domestic car company has taken the United States as the focus of exports, and the tariff adjustment is mainly to boost the election sentiment and win the votes of American workers, which is of little practical significance to China's auto industry.

According to data from the China Passenger Car Association, in 2023, China will export about 18,600 new energy passenger vehicles to the United States.

Why are new tariffs being introduced at this time?

China's auto imports have always been a high-profile issue in U.S. politics. On April 11, Senate Banking Committee Chairman of the U.S. Senate Banking Committee and senior Senator of the Democratic Party of Ohio, Sherrod Brown, sent a letter to President Biden, demanding that Chinese electric vehicles be completely blocked from entering the U.S. market, arguing that Chinese-made electric vehicles have posed an "existential threat" to the U.S. auto industry. In her testimony before the Senate on April 17, U.S. Trade Representative Katherine Tai also said that the U.S. needs to take early and decisive action to protect the fledgling U.S. electric vehicle industry from imported Chinese electric vehicles.

As the U.S. election approaches, the discussion of this issue has become more and more intense as one of the key points of various parties to win public opinion. Former U.S. President Donald Trump, who is preparing for the election, previously said that Biden should have imposed 100% tariffs on Chinese electric vehicles four years ago, and said that if elected, he would impose 200% tariffs on Chinese cars made in Mexico to prevent Chinese companies from producing cars in Mexico and shipping them to the United States to circumvent tariffs.

On May 13, Fu Bingfeng, executive vice president of the China Association of Automobile Manufacturers, responded to the fact that the United States would impose tariffs, saying that the United States exaggerated the overcapacity of China's new energy automobile industry and the so-called national security concerns is a typical trade protectionism, and the new energy industry is created by human beings and can bring common benefits to mankind, but it is very unreasonable to enter the U.S. market but be restricted.

On the night of the policy release, the Information Office of the Ministry of Commerce issued a document saying, "The United States has abused the Section 301 tariff review process to further increase the Section 301 tariffs imposed on some Chinese products, and politicized and instrumentalized economic and trade issues, which is a typical political manipulation, and China strongly disagrees with this." The WTO has long ruled that Section 301 tariffs violate WTO rules. Instead of correcting them, the US side has insisted on going its own way and making mistakes again and again. ”

On the same day, according to the Global Times, during the meeting in Stockholm, Sweden, reporters asked German Chancellor Olaf Scholz and Swedish Prime Minister Kristersson about the matter. Mr. Kristersson said he was opposed to punitive tariffs to settle trade disputes, "and we agreed that it was a bad idea to impose tariffs." Scholz stressed the importance of trade between China and the West, saying that half of the electric vehicles imported by the West from China are produced by Western manufacturers themselves.

During the 2024 Beijing International Auto Show, BMW Group Chairman Zipzer told Tencent Auto's "High Beam" that BMW does not support the EU's countervailing investigation of China's new energy vehicles.

"We support free trade and want to lower, not raise, trade barriers." "BMW also produces cars in China, and BMW is also one of the Chinese companies that also exports vehicles from China to Europe. No one can do it alone in the world's activities to reduce carbon emissions, manage global supply chains, and work on sustainability, so free and fair trade is essential. ”

Chinese automakers remain on the sidelines of the U.S. market

"China's mainstream passenger car companies don't sell a lot of cars in the United States, of course, it may have a little impact on some car companies that want to sell cars in the United States. But on the whole, the impact is not great, because many Chinese companies have been very cautious in the United States for a long time. Oliver Wyman Managing Partner Zhang Junyi said that the tariffs are more of a U.S. attitude and a move that the Biden administration needs to do before the election, but it will not have much impact on China's auto industry.

In recent years, in the face of the increasingly fierce competition in the vast overseas market and the domestic market, going overseas has become an important part of the future strategy of more and more car companies. According to the China Association of Automobile Manufacturers, in 2023, China will export 4.91 million vehicles, a year-on-year increase of 57.9%, surpassing Japan to become the world's largest auto exporter. Among them, the export volume of new energy vehicles reached 1.203 million units, a year-on-year increase of 77.6%.

However, while the number of Chinese cars going overseas has accelerated, the number of cars sold to the United States has not increased in tandem. According to statistics from the General Administration of Customs, the top five destinations for China's auto exports in 2023 are Russia, Mexico, Belgium, Australia, and the United Kingdom. According to the data of the China Passenger Car Association, the total number of passenger cars exported by China to the United States in 2023 will be 74,800, accounting for only 1.4% of the total exports; 18,600 new energy passenger vehicles, accounting for only 0.4%.

According to Cui Dongshu, the number of new energy vehicles exported by China to the United States has been low, about 28,000 units in 2022, about 18,600 units in 2023, and only about 3,000 units so far this year.

In 2022, after the introduction of the U.S. Inflation Reduction Act, the barriers for Chinese cars to enter the U.S. market have further thickened. Li Ke, BYD's executive vice president, criticized at the time that the Inflation Reduction Act would raise the cost of electric vehicles for American consumers. Regarding BYD's overseas plans, she talked about markets such as Mexico, Chile and Thailand, but said that "the U.S. market is not in our current consideration."

In the first quarter of this year, China exported only 2,217 new energy vehicles to the United States, all of which were Polestar, a joint venture between Volvo and Geely Holdings, according to the China Passenger Car Association. In April, Polestar CEO Thomas Ingenlath said that as the geopolitical situation intensifies, Polestar wants to produce more cars outside of China, selling 40% of its electric vehicles to Europe, 30% to the United States, and the remaining 30% to the Asia-Pacific region, and intends to increase production at its factories in the United States.

At present, more car companies are still in a wait-and-see state for the US market, and only a very small number of car companies such as NIO and Chery have made it clear that they have plans to enter the United States. NIO had previously planned to expand its business to 25 countries and regions around the world, including the United States, in 2025, with the goal of selling its first vehicle in the United States in 2025, and has narrowed down its local candidate sites to three states. But in November 2023, NIO US CEO Ganesh Iyer said that due to the high cost of building a factory in the United States, NIO decided to still produce electric vehicles in China and export them to the United States. As of press time, NIO has not responded to the U.S. tariff adjustment.

In October 2023, according to foreign media MotorTrend, Brian Wu, executive vice president of Chery Automobile Mexico, said that Chery has formulated a strategy to expand its business in the United States, saying that entering the American market is "very important" for Chery, and the product plan is to focus on new energy vehicles. After the tariff policy was announced, Chery told Tencent Auto's "High Beam" that Chery's main overseas markets are still in the Middle East and South America.

Cui Dongshu believes that Chery's plan to enter the U.S. market will not be hindered by tariff adjustments, because the initial stage of entering a new market is still focused on understanding the environment, and the sales scale will not be too large. "How can you enter the market and grow explosively? When you go in, you have to feel the environment first, and then gradually develop on top of that. ”

On the same day as the release of the U.S. tariff policy, Leapmotor International was officially established, and the joint venture company exclusively owns the rights and interests to carry out the manufacturing, export and sales business of Leapmotor in the Leapmotor market outside Greater China, with Stellantis Group and Leapmotor holding 51% and 49% of the shares respectively.

Although the press conference did not mention that Leapmotor has plans to enter the United States, Carlos TAVARES, global CEO of Stellantis Group, said that different countries have different customs tariffs, and there may be bubbles in some regions, and Leaprun International should look for opportunities in the bubble. "If Leap International can't export directly, we can use the Stellantis Group's factories for production and export to avoid these risks."

In the view of Zhu Jiangming, chairman of Leapmotor, there is uncertainty in regional politics in the future, and it may be an inevitable trend for China's new energy vehicle brands to de-globalize manufacturing in the future.

Compared with the U.S. tariffs on China, Zhang Junyi said that the more noteworthy issue is how the U.S. government will deal with Mexican imports in the future, "This impact will be very large, and we still have a lot of layouts in Mexico."

According to the China Passenger Car Association, in 2023, China will export 415,100 vehicles to the Mexican market, a year-on-year increase of 62%. In March, according to Roberto Arechederra, Mexico's secretary of economic development in Jalisco, BYD had met with state officials and local Chinese suppliers to consider building an electric vehicle factory there. On the same day as the release of the U.S. tariff policy, BYD also released its first new energy pickup truck in Mexico, which will be sold to the global market, and the United States is the world's largest pickup truck market.

Zhang Junyi believes that in the face of an unstable foreign policy environment, the direction of car companies going overseas is still dominated by countries with policies and regulations that are relatively similar to those in China, and dynamically adjust their strategies. "But in any case, in any country, we must adjust our products in accordance with local strategies and regulations, and in addition, we need to establish a good reputation for Chinese products, good quality, and not just a price war."

After the release of the tariff policy, as of the close of the U.S. stock market on May 14 local time, Xpeng Motors rose 2.35%, Li Auto fell 2.22%, and NIO rose 7.02%. Zhang Junyi explained that the rise in NIO's share price may be related to the release of the new brand Ledao.

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