In Europe, competition from Chinese EV manufacturers is a problem.
So, the EU and U.K. decided that they were first going to encourage and then force people to buy electric vehicles (EVs). The Chinese regime, forever in pursuit of self-sufficiency (China has relatively little oil) and running a country where people were more likely to accept cars built with a technology not ready for prime time, saw the potential opportunity to develop an industry which would disrupt Western automakers’ supremacy, and went for it. As China is a mercantilist state, state support could be thrown its EV makers’ way, and the usual capital constraints didn’t apply.
Tariffs on imports of Chinese EVs into the U.S. during President Trump’s first term were 27.5 percent — sufficient when those cars were still at a fairly basic stage. President Biden (or someone acting on his behalf) then increased them to 100 percent, an appropriate response to the increasing sophistication of Chinese EVs, Chinese mercantilism, and the dual economic and geopolitical threat posed by, yes, China’s growing presence in this sector.
The EU, which faces an even more severe threat from Chinese EV imports, imposed lower (10 percent) tariffs, in no small part because of anxieties over the extent to which it could afford to alienate China. Perhaps even more so than the U.S. (which is in a bad enough position) it is entangled with China, with particular areas of vulnerability including German car manufacturing.
However, unable to ignore the growing signs of disaster for its auto sector any longer, in October, the EU imposed higher provisional import duties on Chinese EVs of up to 35 percent, on top of the earlier 10 percent. “Final” rates were set a month or so later. The top rate was again 35 percent (plus the original 10 percent), although quite a few manufacturers paid less. Whether those tariffs will be high enough remains to be seen (Spoiler: No).
Nevertheless, the message was clear: Competition from Chinese EV manufacturers was a problem.
So, in 2025, Brussels will start fining manufacturers in the EU that do not sell enough EVs under a Soviet-style quota regime already in place in the U.K.
Sales of electric vehicles have plummeted, prompting carmakers to demand urgent intervention by the European Commission as they face huge fines for failure to comply with CO2 emissions standards. . . .
ACEA [the European Automobile Manufacturers’ Association] highlighted the sales trend in question in a statement published the previous week: overall car sales fell over 18% year-on-year across the EU last month, with the market share of fully electric models falling from 21% to just over 14%.
This is a problem because the EU limit on CO2 emissions per kilometre is based on the average of all vehicles sold by a given manufacturer: if the share of zero-emissions cars falls, the overall average will go up.
If customers won’t cooperate by buying enough EVs, there are ways (as was seen in the U.K. in respect of 2024) of heading off those fines, albeit expensively: Rationing sales of traditional cars, offering extraordinarily deep discounts on EVs (roughly double what the manufacturers had expected), and buying carbon credits from other manufacturers.
Many carmakers in the EU are looking to use the “pooling” option, where manufacturers average out the greenhouse gas emissions of their fleets with other companies that sell in the bloc.
Analysts estimate that some European groups may be forced to buy hundreds of millions of euros worth of carbon credits from Chinese rivals such as BYD, which has one of the largest pools of credits to sell thanks to high EV sales in the EU. . . .
According to recent EU filings, Tesla expects to pool credits with companies including Stellantis, Ford and Toyota. The US EV maker has already made more than $2bn in the first nine months of last year from selling credits into emission pooling systems globally.
In another pool, Mercedes-Benz has teamed up with Polestar and Volvo — both owned by China’s Geely. Geely’s founder Li Shufu holds about 10 per cent of Mercedes, while Beijing owned BAIC holds another 10 per cent.
The Chinese stake in Mercedes is worth noting. The company’s CEO has recently said that the EU should encourage more Chinese manufacturers to locate production within the bloc. Could Europe’s carmakers end up as assembly plants for Chinese owners?
The FT reports the criticism that the EU’s approach is somewhat — how to put this — inconsistent. Impose extra tariffs to make it more difficult for the Chinese to import more EVs, but impose new rules which will mean that embattled EU manufacturers are forced to enrich, and thus strengthen, their Chinese competitors.
The “regulatory superpower” is what it is.
One interesting detail is that Volkswagen, which is looking increasingly troubled, would, according to one analysis, have to double its sales of EVs in 2025 to meet its target. VW says it can manage by itself, but we’ll see. If VW did end up needing credits, it would have to buy them from a wide range of Chinese companies. The company comments, “Every euro invested in possible penalties would be a poorly invested euro.” It’s hard to disagree, but VW may have no other choice.
Renault said it’s too early for it to decide what it will do, but commented that pooling arrangements will strengthen Chinese competitors at the expense of the EU car sector. Indeed.
The EU’s approach is reducing its auto sector to a wreck, something that, if maintained, will lead to political as well as economic turmoil — a double win for China.
Meanwhile, the U.S., as from yesterday, seems set to go in a very different direction. . . .