EU-China Electric Vehicle Trade War, Luxury Cars Take a Hit

WSJ "Porsche Takes a Direct Hit More Than Renault"

An analysis has emerged suggesting that the European Union's (EU) trade war targeting low-cost electric vehicles from China could ironically harm the EU's luxury car brands.

The Wall Street Journal (WSJ) reported on the 11th (local time) that as the EU prepares to announce the results of its anti-subsidy investigation into Chinese electric vehicles, raising tariffs on Chinese EVs could lead to such an outcome.

The EU has raised suspicions that China is encouraging low-cost exports by providing excessive subsidies to its domestic electric vehicle manufacturers and has been conducting an anti-subsidy investigation since October last year. Foreign media suggest that a likely measure is to raise the current 10% tariff on Chinese electric vehicles to around 25-30% to help EU electric vehicles become more competitive.

In the short term, the prevailing view is that Chinese electric vehicle brands will find it difficult to expand their market share in Europe. According to Schmidt Automotive Research, only one out of every ten new electric vehicles sold in Western Europe in the third quarter of 2023 was a Chinese brand. France excluded Chinese electric vehicles from its subsidy program, causing the market share to decline even further in the fourth quarter.

So far, the best-selling Chinese electric vehicle in Europe is MG, which was originally a British brand but was acquired by China's Shanghai Automotive Industry Corporation (SAIC). However, according to data provider Jato Dynamics, MG did not rank among the top 10 best-selling electric vehicle models in the EU in April.

However, the threat of Chinese electric vehicles leveraging their low prices is clear in the long term. BYD is already building a factory in Hungary, and Volvo plans to produce the EX30 in Belgium instead of China. Tesla, which produces the Europe-bound Model 3 at its Shanghai plant, is also expected to be affected.

China's response also poses a threat to EU manufacturers. The Chinese Chamber of Commerce in the EU stated that China is considering raising tariffs on imported cars equipped with large-displacement engines. If China raises tariffs, luxury car brands like Porsche, which are produced in Germany but derive about a quarter of their sales from China, are expected to be directly hit. WSJ noted, "Ironically, investors previously assumed that luxury cars were relatively safe from the threat of Chinese electric vehicles. Last year, the market was concerned that competition would intensify among mass-market manufacturers like Renault." However, as concerns about luxury cars have materialized, Porsche's stock price has fallen 37% over the past year, while Renault's stock price has risen 55%.

WSJ predicted, "Ultimately, it is highly likely that a kind of truce will be maintained while continuing trade," adding, "The EU cannot choose isolationism because its export dependence on China is higher than that of the United States." It continued, "In the case of Renault, there seems to be progress in cost reduction," and "This shows the EU's only response to Chinese electric vehicles. High tariffs only buy a little time."