BRUSSELS: The European Union on Thursday slapped extra provisional duties of up to 38 percent on Chinese electric car imports because of "unfair” state subsidies, despite Beijing’s warnings the move would unleash a trade war. A European Commission probe launched last year concluded that state subsidies for Chinese EV manufacturers were unfairly undercutting European rivals -- which Brussels wants to shield as they make the transition from thermal to electric power.

The Chinese Chamber of Commerce to the EU slammed the tariffs, coming on top of current import duties of 10 percent, as "politically-motivated” and "protectionist”, while voicing hope the dispute could yet be resolved through dialogue. Europeans themselves are split on the move, with Germany and its homegrown auto champions, who do significant trade with China, fearing it will do more harm than good if it leads to a clampdown on EU exports as Beijing has already threatened.

German auto giant Volkswagen slammed the move as "detrimental” while the head of BMW said the tariff battle "leads to a dead end”. France and Italy have pushed for tariffs on Chinese EVs - whose market share in the EU has skyrocketed - but Sweden like Germany has expressed reservations, while Hungary is outright opposed. The provisional tariffs will kick in from Friday, with definitive duties to take effect in November for a period of five years, pending a vote by the EU’s 27 member states.

"Our investigation... concluded that the battery electric vehicles produced in China benefit from unfair subsidization, which is causing a threat of economic injury to the EU’s own electric car makers,” the EU’s trade chief Valdis Dombrovskis said. In response, the commission imposed provisional duties on major Chinese manufacturers including 17.4 percent for market major BYD, 19.9 percent for Geely and 37.6 percent for SAIC. Other producers in China that cooperated with the EU will face a tariff of 20.8 percent, while those that did not cooperate would be subject to the maximum of 37.6 percent duty. US tech billionaire Elon Musk’s Tesla - which manufactures in China - is the only electric automaker that has asked Brussels for its own duty rate, to be calculated based on evidence it has submitted.

‘Intensive’ talks with China

The move comes despite the opening of talks between Chinese and EU trade officials, but Brussels will continue "to engage intensively with China on a mutually acceptable solution”, trade chief Dombrovskis said. China’s electric car maker Nio said it still hoped for a resolution with the EU, while fellow EV maker XPeng said it would "find ways to minimize the impact on consumers” without changing its international strategy. EU officials have indicated that, should a negotiated solution emerge, they may not ultimately need to levy the tariffs.

But Dombrovskis cautioned that "any negotiated outcome to our investigation must clearly and fully address EU concerns and be in respect of WTO rules.” Beijing has already signaled its readiness to retaliate by launching an anti-dumping probe last month into pork imports, threatening Spanish exports, and Chinese media suggest further probes could be in the works. Chinese officials have also railed against EU investigations targeting state subsidies in the green tech sector, including wind turbines and solar panels.

Expected cut to imports

The United States has already hiked customs duties on Chinese electric cars to 100 percent, while Canada is considering similar action. But Brussels faces a delicate balancing act as it seeks to defend Europe’s auto industry - the jewel in its industrial crown - while both avoiding a damaging showdown with China and meeting its targets for slashing carbon emissions. The EU aims for Europeans to switch massively to electric vehicles as it plans to outlaw the sale of new fossil fuel-powered cars from 2035. Chinese-made EVs’ market share in the EU climbed from around three percent to more than 20 percent in the past three years, according to the European Automobile Manufacturers’ Association. Chinese brands account for around eight percent of that share, it said.

German displeasure

Germany’s Kiel Institute for the World Economy, alongside Austrian institutes, predicted the provisional higher taxes would reduce vehicle imports from China by 42 percent. They added that electric car prices could rise by an average of 0.3 to 0.9 percent in the EU. German auto manufacturers fear any retaliation could hurt their activities in China, and Germany’s Vice Chancellor Robert Habeck visited Beijing last month on an 11th hour mission to avert a damaging trade war. Duties were "generally not suitable for strengthening the competitiveness of the European automotive industry in the long term - we reject them”, Volkswagen said in a statement. The EU refused to comment on the criticism.

EV plant in Thailand

Meanwhile, China’s electric vehicle giant BYD opened a factory in Thailand on Thursday, continuing its international expansion despite a market slowdown and hours before the European Union was due to impose swingeing tariffs on Chinese EV firms. The plant in Rayong, an industrial area southeast of Bangkok, will be able to build up to 150,000 vehicles a year, according to the company, which dominates its domestic market. Wang Chuanfu, Shenzhen-based BYD’s chief executive, said production would initially focus on full electric vehicles and later expand to include plug-in hybrids, which combine a conventional engine with an electric motor.

"BYD Thailand plant has an annual capacity of 150,000 vehicles, including the four major processes of vehicle and parts production, and will create about 10,000 jobs,” Wang said at an opening ceremony. Thailand has long been a major assembly hub for Japanese car makers including Toyota and Honda, but is now seeking to shift production away from conventional vehicles and towards EVs. The kingdom has offered substantial tax breaks for companies as it aims for 30 percent of its car production to be EVs by 2030.

BYD overtook Elon Musk’s Tesla in the fourth quarter of 2023 to become the world’s top seller of electric vehicles. Tesla reclaimed top spot in the first quarter of this year, but BYD is bullish about its expansion, insisting last month it would press ahead with a second factory in the European Union. The Chinese automaker recorded a record annual profit of 30 billion yuan ($4.1 billion) last year, but in April reported lower than expected revenue for the first quarter of 2024.

BYD has faced a bitter price war in China, where a staggering 129 EV brands are slugging it out—with only 20 achieving a domestic market share of one percent or more, according to Bloomberg. China has led the global shift to electric vehicles, with almost one in three cars on its roads set to be electric by 2030, according to the International Energy Agency’s annual Global EV Outlook. But European regulators have raised concerns about what they say is "overcapacity” created by excessive state subsidies.

Seeking to protect European manufacturers from cheaper Chinese imports, Brussels has proposed a provisional hike of tariffs on Chinese manufacturers: 17.4 percent for BYD, 20 percent for Geely and 38.1 percent for SAIC—in addition to the current 10 percent import duty. EU and Chinese trade chiefs held talks last weekend in a bid to avert a bitter trade war, but the tariffs are set to come into force on Thursday. But while they are high, the EU tariffs are significantly lower than the 100 percent rate the United States imposed from last month on Chinese electric cars. — AFP