13 June 2024

Are tariffs going to help or hinder the EV transition?

Two of the largest electric vehicle (EV) markets, the EU and the USA, have announced tariffs to ratchet up the pressure on Chinese EVs in the last two months. On May 14, the Biden administration announced 100% tariff on all EVs imported from China. On June 12, the EU has announced its intentions to impose OEM specific duties, ranging from 17-31%, on China built EVs that have benefitted from ‘unfair state subsidies’.

This is not necessarily meaningful for Chinese OEMs; almost 90% of fully electrics cars built in China in 2023 were sold domestically. While the EU collectively took the silver medal, it was the UK, now outside the jurisdiction of EU tariffs, that was the second largest single market for Chinese EVs.

 

Source: SFA (Oxford), EV-Volumes

Lakshya Gupta

Senior Market Analyst: Battery Materials & Technologies

We expect a stronger negative impact from European consumers. The cheapest EVs on the market today are imported from China. For example, a 38.1% tariff on the SAIC owned, base model MG4, in Germany, would lead to the price increasing from €31,990 to €44,200: a similar price point to the long-range Volkswagen ID.3, sales of which are lagging due to high price.

This will potentially slowdown the EU’s transition towards 100% zero-tailpipe emissions by 2035 as one in five EVs sold in the EU in 2023 were manufactured in China, from over 20 unique OEM groups. Interestingly, only two of the five largest producers, representing c.90% of total export volume, were wholly Chinese owned; SAIC (through MG) and Geely-Volvo (through Polestar). It is unclear at this time if the duties will also apply to non-Chinese OEMs that are building in, and exporting from, China (and therefore benefitting from the subsidised battery supply chain). Tesla, Renault (Dacia) and BMW (iX3) make up the rest of the top five exporters out of China.

SFA expected LFP to gain ground in Europe prior to the announcement of duties, expecting growth of Chinese exports to the EU in the near-term. China has seen a massive resurgence in the lithium-iron phosphate (LFP) cathode in recent years through strong technical innovations from BYD and CATL. However, Chinese exports to the EU have to date largely still been nickel-chemistry based. Less than 20% of total BEVs imported from China last year were based on LFP. Combined with the fact that LFP cars typically have smaller battery packs, only 15% of total equipped battery capacity on EVs was LFP based. A slowdown in EV exports from China attributed to these tariffs could lead to a slower transition to LFP in Europe and subsequently demand upside for nickel, cobalt and manganese.

One significantly implicated OEM is BYD. The leading Chinese EV producer is preliminarily facing duties of 17.4% and has increased BEV exports to the EU by almost seven-fold in the first three months of 2024 (year-on-year). It was expected to continue to grow at a rapid pace through market expansion in international markets. The tariff coming into play in early July could implicate H2 exports. The company could seek to navigate these duties by fast-tracking the planned vehicle assembly plant in Szeged, Hungary for which the timelines remain uncertain. Another alternative BYD could take is to focus growth on RoW markets such as India and Brazil, to accelerate EV uptake. While countervailing duties may protect EU manufacturing and sales within EU, it could hurt market share growth in other major markets; India and Brazil represented the third and eighth largest automotive markets in 2023 respectively.

SFA will be assessing the full fallout on the critical cathode commodities from the proposed tariffs on Chinese EVs, among other major events in recent months, in its Q2 Battery Metals Quarterly report, to be published on 5th July.