China has been on the receiving end of trade restrictions since the beginning of the year. On one hand, the hike in tariff by the United States, Canada and the European Union has some political undertone because of China’s alliance with Russia. On the other hand, these countries claimed that cheap Electric Vehicles (EV) imports from China are hurting their economy. This year, the US increased the tariffs on EVs from 25% to 100% effective from August 1, 2024. Likewise, tariffs on semiconductors will rise from 25% to 50% by January 2025, and tariffs on Lithium-ion batteries for EVS and other uses will increase from 7.5% to 25%. In the EU, the tariff on EVs have also increased, albeit moderately compared to the US. The tariffs, which became effective in July 2024, range depending on the manufacturer. For instance, BYD, Geely’s vehicles and SAIC’s brand face an elevated tariff of 17.4%, 20% and 38.1% respectively. In Canada, plans are underway to raise the current 6.1% tariff on chinese-made EVs imported to Canada. On the back of this ‘crowd-tariffing’ development, it is important to validate if EV import from China is hurting the domestic economies of the afore-mentioned markets.
Before considering the three markets, it is important to understand that the ignited concern over chinese-made EVs is due to the increase in its global supply. The US International Trade Commission noted that Chinese EV exports increased 1,016 percent from 2018 to 2023, to nearly 1.6 million EVs exported in 2023 (the largest volume of any exporter). The value increase in Chinese EV exports was even greater, up 12,334 percent from $295 million in 2018 to $36.7 billion in 2023. China has also been the second largest exporter by value of EVs since 2021. Interestingly China did not achieve this feat overnight. Prior to 2018, production of EVs in China was limited because foreign automakers were required to form joint ventures with local companies, limiting foreign ownership to 50%. Between 2018 and 2022, the Chinese government allowed foreign manufacturers to produce EVs without the JV agreement. Under the new regulations, established foreign producers began exporting electric vehicles (EVs) from China. Tesla constructed a 750,000-unit assembly plant in Shanghai without a joint venture partner, while BMW and Renault renegotiated with their previous joint venture partners to form new joint ventures that they control. (BMW now holds a 75.0 percent stake in its joint venture with Brilliance, and Renault owns 50.1 percent of its joint venture with Jiangling Motors.) As a result, all three manufacturers became major exporters of EVs from China, capturing a significant portion of high-value Chinese EV exports. Tesla emerged as China’s largest EV exporter in 2019. Additionally, domestic EV manufacturers, including established Chinese companies such as BYD, Ora, MG, and Roewe, as well as startups like Aiways, Nio, and Xpeng, enhanced the quality of their EV offerings and began exporting to the EU (Source: Coffin and Walling, 2024).
The EV market in the US has experienced tremendous growth in the last five years because of increasing consumer interest in sustainable transportation, supportive government policies and advancement in EV technologies. According to reports from Modor Intelligence, the US EV market is valued at approximately $50 billion in 2024 with expected annual growth rates of over 20% from 2024 to 2032. According to the U.S. International Trade Commission, U.S. EV imports from China increased from $7.2 million to $388.8 million during 2018–23 but were still only 2% of the U.S. EV imports. This is because Tesla supplies the US market with EVs which are produced domestically. Given the small market share of chinese-made EVs in the US, the hike in tariff is best described as a precautionary move to avert a glut of cheap chinese-made EVs. Given the competitive EV production landscape in the US with other automakers like General Motors, Ford, Nissan, and Volkswagen, the local producers appear positioned to cater for the bulging demand in the U.S. Therefore, U.S. fear of chinese-made EVs is moderate and the tariff hike on EVs is simply a proactive move to protect local producers.
In the EU, the size of the EV market is estimated at $93 billion and is projected to reach around $158.6 billion by 2029, representing a CAGR of 23.4% from 2024 to 2029 (Sources: Fortune Business Insight, Market Data Forecast). Germany, France and the United Kingdom accounted for the biggest markets for EVs. Chinese-made EVs captured about 19.5% in 2023 and the market share is expected to notch up to 25% in 2024 (Source: EV inFocus). 25% is definitely a significant market share to warrant some concern from the EU. Therefore, raising the tariff rate on chinese-made EVs is a corrective move to protect local producers.
Canada’s EV adoption has blown up in the last few years based on various local initiatives in place to encourage EV adoption. For instance, the government provides incentives up to $5000 for purchasing zero-emission vehicles. These incentives are in a bid to support the government’s aim of achieving 100% zero emission by 2035. Based on these incentives, the Canadian EV market has ballooned to around CAD 2.5 billion. According to official numbers from the government of Canada, Chinese EV imports to Canada rose from CAD 84 million in 2022 to CAD 2.2 billion in 2023. Clearly, over 50% of the EV market in Canada is controlled by Chinese EV producers. Therefore, like the EU, raising the tariff rate on chinese-made EVs will be a corrective move to protect local producers. This is particularly true considering that companies like Honda and Northvolt have initiated plans to commence local production of EVs and EV-parts.
The explanation above indicates that the chinese-made EV fear is more valid in the EU and Canada compared to the US. The EU seems to have more local producers than Canada; therefore, it is likely that the tariffs could yield more results. This is unlike Canada, where international automakers are recently exploring the EV market, and investment in the EV market usually takes some time. While Canada can keep the tariff elevated to protect the nascent investments coming to the EV market; the effectiveness may be difficult given the rising demand for EVs on the back of the various initiatives.
Written by Michael Ogunremi
Reference – Coffin, D. and Walling, J. (2024). Chinese Vehicle Exports: Electrified. Executive Briefings on Trade, April 2024
Featured image – Pexels