China's EV entrance into international markets has hit a bump with the trade barriers from Europe and the US, casting a dark cloud above their expansion.
Despite that, current conditions still suggest Europe is more conducive to the development of Chinese EVs due to fewer uncertainties. According to PwC research, Chinese-brand EV exports to Europe are projected to surpass European-brand EV exports to China in 2024, marking a significant shift. Chinese EVs show greater potential in Europe compared to the US.
Taxes of two worlds
Firstly, tax rates differ significantly. The highest provisional total tax rate for Chinese EVs imported into Europe is below 50%. The final decision will be made in November, involving EU investigations and consultations with various governments and car manufacturers.
In contrast, US incumbent President Joe Biden has increased the tax rate on Chinese EVs from 25% to 100% starting in August. If the Democratic Party wins the next presidential election, a continuity of Biden's strategy is expected.
If Republican Donald Trump wins, the situation could become even more unpredictable. Secondly, post-tariff operations vary. In Europe, if tariffs are finalized, Chinese manufacturers might establish factories locally.
Although production costs and environmental regulations would increase, Chinese parts suppliers could collaborate closely with European manufacturers, potentially fostering a local ecosystem.
In the US, the situation is more uncertain. Biden's Inflation Reduction Act (IRA) is subject to annual adjustments, with the "Foreign Entity of Concern" (FEOC) provision starting in 2024. This makes it difficult for car manufacturers using Chinese parts to receive subsidies which in turn poses significant barriers for Chinese manufacturers looking to establish factories in the US.
For example, CATL opted to license its patents to Ford instead of setting up a factory, and BYD's plans to build a factory in Mexico have garnered significant attention.
Trump has threatened to impose a 200% tariff on Chinese factories in Mexico, urging them to set up in the US instead to boost American employment. However, if Trump eliminates the IRA, along with subsidies for renewable energy, storage, and EVs, the rationale for Chinese EV and parts manufacturers to establish US factories would be undermined.
Resilience amidst trade war
Chinese manufacturing has historically adapted to various trade wars with flexibility and resilience. Many international analysts predict that such trade conflicts are unlikely to yield long-term results.
Industry experts cite China's solar industry as an example of long-term trade war resilience. Despite over a decade of trade barriers, Chinese solar products still hold over 85% of the global market share. The EU has already lifted trade barriers against Chinese solar products. Despite the energy crisis caused by the Russia-Ukraine war prompting the EU to consider local production, no substantial progress has been made.
The US has engaged in a prolonged trade war against Chinese solar products. Chinese manufacturers have expanded to four Southeast Asian countries, leading some to establish factories in the US For high-tech batteries. Chinese companies plan to move operations out of Southeast Asia to new locations, creating a widespread network across the globe.
