As expected, following the US imposition of protective tariffs on Chinese electric vehicles, the EU has announced that it will also introduce punitive tariffs on EVs manufactured in China. Given the rapid progress in the development of battery technology, connectivity and vehicle manufacturing in China, the fear in Europe of being left behind is understandable.
Not everyone agrees with the imposition of protective tariffs.
Interestingly, just hours after the tariffs were announced, the Association of European Automobile Manufacturers (ACEA), which represents the very industry that is supposed to be protected, released a statement saying it “took note” of the decision and challenged the government body on its industrial policy: “What the European automotive sector needs above all else to be globally competitive is a robust industrial strategy for electromobility.” Industry leaders have followed suit and reinforced emphasis on competition rather than protectionism.
This is because they have witnessed the rise of China’s new energy vehicle sector first-hand. Certainly, government support has played a crucial role, but the real ignition of the innovative power of Chinese manufacturers has been sparked by the presence of Tesla. The permission for the American pioneer of electromobility to set up shop in China has had a lasting impact on the competitive mentality of domestic players.
The European Commission’s justification for introducing the tariffs seems ambiguous.
The Commission claims that “the prices of the subsidised imports are significantly lower compared to the prices of the Union industry, thereby depressing prices” and “causing a threat of economic injury to EU BEV producers.” In other words, Chinese EVs are cheap and would put European car makers out of business – a narrative that was widely picked up by the media.
In fact, there is no such thing as cheap EV imports from Chinese brands.
In Germany, the VW ID.3, a benchmark model in the compact BEV segment, costs 36,990 euros. That’s only 2,000 euros more than the MG4 EV, one of the best-selling Chinese electric cars in Europe, but 1,000 euros less than the BYD Atto (sold in China as the BYD Yuan Plus).
The subcompact BYD Dolphin is no real bargain either, with a retail price of over 32,000 euros.
BYD Seal and Xpeng P7, both competitors of the Tesla Model 3, sell for just under 45,000 euros and 50,000 euros respectively, compared to Tesla’s price of just under 41,000 euros.
There is widespread agreement that car prices in China are depressingly low, but the suggestion that Chinese EVs are sold cheaply in Europe is nothing more than a myth. Low prices would inevitably reinforce the perception of low quality, and Chinese carmakers have understood this well. Instead, they are perfectly committed to competitive pricing, just as international brands apply competitive pricing in other local markets: a VW ID.3 is available in China for the equivalent of less than 21,000 euros, a Tesla Model 3 for less than 30,000 euros.
Such a narrative of cheap imports distracts from the fact that Western carmakers have essentially failed to develop cost-effective battery technology and build an efficient EV supply chain – this is exactly where innovative thinking in a competitive context would come into play.
The excessive focus on low vehicle prices ignores the sophisticated purchasing behaviour of (European) car consumers.
While price is one element in the equation, many other aspects such as vehicle design, brand, service quality, but also cost of ownership, resale value, etc. ultimately lead to the evaluation of the cost-benefit analysis and the final purchase decision. Otherwise, the Dacia Spring for 17,000 euros (also produced in China) would be the absolute bestseller. In reality, however, the model lags significantly behind other, much more expensive EVs.
The European Commission’s protectionist approach risks increasing the prices of EVs and seriously undermines the desired transition to electromobility. What is overlooked is that consumers’ switch to electric vehicles is in fact an exercise in behaviour change. The focus should rather be on how to encourage the change of habits and mitigate the costs of behaviour change for EV users. One can be achieved by innovative car manufacturers bringing attractive models to market and governments offering purchase incentives, the other with extensive charging infrastructure and low electricity prices; in other words, through a forward-looking industrial strategy.
