Europe needs more and cheaper electric cars. Tariffs won't help, and China may retaliate

This week, the common bloc engaged in a chaotic battle over global electric vehicle trade. Brussels has raised customs duties on vehicles imported from China. European Commission In this way, it wants to protect the industry against what it considers to be illegal subsidies that the Chinese government uses to support producers in the Middle Kingdom.

Tariffs will not help lower prices

The reaction from Brussels was quick, but higher tariffs on vehicles from China will not help reduce the high prices of electric vehicles. However, these actions may harm rather than help domestic companies such as Volkswagen and Renaultas China threatens retaliation.

“Protecting car manufacturers from competition i preventing consumers from accessing affordable electric vehicles it will not help achieve climate goals, nor will it help domestic industry,” said Aleksandra O'Donovan, head of the electric transport research team at BloombergNEF, in an interview. In her opinion, transport decarbonization goals may not be a priority at the moment.

Europe's ambitious green goals assuming the gradual phasing out of the sale of new combustion-powered cars by 2035 were previously at risk. After phenomenal sales growth, electric vehicles still remain too expensive for average consumers from Berlin to Bulgaria. Chinese companies led by BYD and MG SAIC Motor are preparing to deliver cheaper models, but new customs duties will keep the prices of Chinese electric cars out of the reach of many potential buyers for longer.

Lower sales forecasts for electric cars

In its annual electric vehicle forecast released Wednesday BloombergNEF lowered its forecast for global electric car sales by 6.7 million by 2026, experiencing much slower growth than forecast just a year ago. BNEF says several Nordic countries and the state of California are the only places committed to eliminating CO2 emissions from their passenger vehicle fleets by 2050.

According to Germany's Institute for the World Economy in Kiel, EU tariffs are likely to cut car imports from China by a quarter, or about $4 billion.

Will Tesla and others suffer too?

The impact of tariffs is not limited to Chinese automakers. Almost one fifth full electric vehicles sold in the EU last year were manufactured in China. Deliveries are dominated by Tesla, which imports Model 3 sedans from Shanghai. According to the lobby group Transport & Environment, this share is expected to increase to 25%.

On the premises Middle Kingdom other manufacturers also have their factories, including: BMW, Volvo Car and Renault, which also supply a significant number of electric vehicles to the European market.

These car manufacturers will also have to pay. The Commission decided to impose individual duties on the following companies: BYD (17.4 percent), Geely (20 percent) and SAIC (38.1%). Other electric vehicle manufacturers in China that cooperated with the EC's investigation would be subject to a 21% tariff, and those that did not cooperate would be subject to a 38.1% tariff. However, Tesla and potentially others could expect a correction based on individual factors.

Is the threat of Chinese retaliation real?

BMW CEO Oliver Zipse believes that the decision to impose additional import duties is a bad solution. “Protectionism risks a spiral: tariffs lead to new tariffs, to isolation, not cooperation,” said Oliver Zipse.

China has threatened retaliation against agriculture, aviation and large-engine cars. Nevertheless, Beijing will likely proceed cautiously to maintain access to the European market as a lucrative export destination.