How Europe’s Tariffs on Chinese Electric Cars Could Impact Tesla

This week, on the heels of the more extreme moves by the U.S., the E.U. imposed tariffs on Chinese-manufactured electric vehicles that are likely to put a crimp on the flow of affordable EVs coming to the Western world.  “Unlike in the U.S., the European market has a large number of electric vehicles from China,” Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions, told Observer via email. “Over the last few years, brands like MG and BYD have gained significant market share for their electric models. Dacia and Tesla (TSLA) are among the non-Chinese brands also shipping electric vehicles produced in China. For price-conscious buyers, these are important vehicles.” 

How the E.U. tariffs differ from the U.S. tariffs

The tariffs are graduated and target different Chinese EV makers with tariffs that range from 17.4 percent up to 38.1 percent, all of which are considerably less than the blanket tariff of 102.5 percent that the U.S. has placed on Chinese EVs. The tariffs are provisional and set to apply by July 4. The investigation around the tariffs will continue until November, when the final duties, set to last for five years, will be imposed.

According to a post in response to the provisional tariffs by Sara Bauerle Danzman, a researcher and non-resident senior fellow at the Atlantic Council, the E.U. tariffs are in response to a rapid increase in Chinese EV imports to the E.U. countries. Danzman also noted that the E.U. has made the best attempt to make the new tariffs World Trade Organization (WTO)-compliant, unlike those in the U.S.  

AutoForecast Solutions’ Fiorani estimated the E.U. tariffs will largely hurt sales and impact buyers seeking lower-cost EVs in Europe.  “Thousands of Chinese-made Tesla Model 3 sedans, MG4 and MG ZS crossovers, and Volvo EX30 crossovers are sold every month to European customers,” he said. “There are virtually no alternatives for buyers if the $30,000 MG4 is saddled with a 38 percent tariff. Dealers around the E.U. will see their EV volumes drop considerably by losing these offerings. Regulators looking to eliminate internal combustion engines in the next decade will see the transition slow as prices rise on imported and even domestic EVs.”

How will the new tariffs impact Tesla in the E.U.?

Tesla imports many EVs to Europe from its Shanghai Gigafactory. Starting July 4, Tesla cars imported from China will be subject to a lower tariff of 21 percent, which is the same levied on other Chinese carmakers, including SAIC GM, Geely, SAIC Volkswagen, BMW Brilliance, Xpeng and Leapmotor. 

Tesla’s Berlin-Brandenburg Gigafactory in Germany, which opened in 2022, has been plagued with everything from arson to protests thanks to Musk’s polarizing politics and his plans to expand the plant. There are also efforts to unionize the beleaguered plant. The most recent data from 2023, shows that the Berlin Gigafactory hit a daily production goal of 5,000 vehicles per day, a benchmark the company considers to be “volume production.” Musk recently said he’s opposed to any tariffs. 

In response to the new E.U. tariffs, Tesla will increase the price of the Model 3. Buyers in Germany, France, Belgium, Ireland and Hungary were all served with messages that encouraged them to get their orders in before the end of June. “We’re anticipating a requirement for us to increase pricing for Model 3 vehicles as of 1 July 2024,” the message on the Tesla site read, according to Reuters. “This is due to additional import duties likely to be imposed on electric vehicles manufactured in China and sold in the E.U.” The Model 3 currently costs 40,990 euros ($44,262) in Europe. 

China’s response to growing trade pressure

The Chinese foreign ministry spokesperson Lin Jian called the tariffs a “typical case of protectionism” and said they would impact China-E.U. economic cooperation, Reuters reported. The Chinese Passenger Car Association (CPCA), a trade organization, was less concerned about the tariffs saying that they “won’t have much impact on the majority of Chinese firms.”

“Those exporting China-made EVs that include Tesla, Geely and BYD still have huge potential for development in Europe in the future,” CPCA Secretary General Cui Dongshu told Reuters. Chinese EV makers and suppliers are beginning to invest in European production sites to circumvent the tariff issue. 

“Low wages and potentially unfair government subsidies provide an uneven playing field as China props up its domestic automotive industry,” Fiorani noted in his email. “Protective tariffs can help narrow the gap as the global industry looks to transition into electric vehicles.”