EU Automakers Under Threat From Chinese EV Tariffs

EU's import tariffs on Chinese electric vehicles (EVs) may hurt consumers and sectors vulnerable to possible retaliation, with EU stocks taking a beating in the aftermath of the decision.

EU's Tariffs Too Low?

Following an extensive investigation into the level of government support for Chinese EV companies, the EU imposed provisional tariffs on Chinese EVs entering the EU ranging from 17.4% to 38.1%, scheduled to take effect on July 4. It follows pressure to protect the European EV industry and maintain fair competition after the US quadrupled its tariffs on Chinese EVs and created a competitive imbalance in the global EV market. The tariffs aim to encourage further investment and development of European-made EVs, ultimately benefiting the EU's overall transition to electric mobility by raising the selling prices of Chinese EVs in the EU.

The move was viewed as a major setback for EU consumers and Chinese EV producers, who face extra duties in addition to the current 10% levy. However, some argued that the tariffs were too low and that Chinese automakers could absorb them by pricing adjustments. BYD and Geely shares fell following the announcement, but they have already started building production facilities in Europe. Saic, the Chinese-state EV manufactured, lost 38.1%. Germany also feared that the tariffs could lead to severe retaliation from China, leading to a loss of market share and a full-scale trade war. Volkswagen shares fell by more than 5%, along with those of Porsche, as the company deals with a potentially weaker demand at home and in China as it has a big presence -- it sold 3.2 million vehicles in China last year.

​Potential for Retaliation

China's Ministry of Commerce has stated that it will take all necessary measures to protect its interests and car makers, but specific retaliatory actions have not been announced yet. The country has a history of retaliating and has already started an anti-dumping investigation into brandy imported from the EU, targeting French cognac producers like Pernod Ricard and Remy Cointreau, as well as into EU pork and dairy producers. Most importantly, China is a major supplier of critical minerals and components and has previously used this as leverage in trade disputes, which could disrupt the EU's Green Deal transition goals.

The tariffs and potential for retaliation have increased uncertainty and volatility in the global EV market. While Volkswagen, BMW, and Mercedes-Benz have a significant local production presence in China, retaliatory tariffs on imported vehicles could still impact them down the line. How they perform might depend on the price differential to the European consumer and whether local EU subsidies can make up for the potential loss. Renault is less vulnerable to tariffs or potential Chinese retaliation due to its market share and existing venture with China's Geely, and may be able to lead a potential reversal or avoid substantial share drops.

Renault in Consolidation

Renault's current price action seems to be primarily technically driven following the rejection from the upper ascending channel. Should the ongoing consolidation prevail above €44, the stock may accelerate to €65, €70, and even €79 over the long term and still not be near the €100 mark reached in 2018. Conversely, a break below support could lead to additional declines towards €37, with further drops to €31 and the channel's lower trendline.

Source: SpreadEx / Renault

Key Takeaways

The EU's provisional import tariffs on Chinese EVs may negatively impact EU consumers and sectors vulnerable to retaliation. The tariffs aim to encourage further development of European EVs, but major Chinese and European automakers saw share prices decline on the news. The tariffs and possibility of retaliation have increased uncertainty in the global EV sector as companies like Volkswagen may face weaker demand in both Europe and China. While they could lead Germany and others to lose Chinese market share in a potential trade war, Renault may be less affected due to its existing joint venture with China's Geely and market position.