The EU has imposed tariffs to create trade frictions and disrupt the global automobile industry chain. How to deal with it?
On June 13, SAIC Motor issued the "Public Statement on the European Commission's Countervailing Duty Decision" which attracted widespread attention in the industry. SAIC said: "We are deeply disappointed with the European Commission's decision. The relevant measures not only violate market economic principles and international trade rules, but may even have a greater adverse impact on the stability of the global automobile industry chain and China-EU economic and trade cooperation."
The background is that the EU plans to impose additional tariffs on Chinese electric vehicles based on the original 10% import tariff. SAIC Motor has been treated as a "top priority", that is, a tariff of 38.1%, and the tax rate will reach 48.1%. In contrast, the tariffs the EU plans to impose on BYD and Geely are much lower than those on SAIC Motor, imposing tariffs of 17.4% and 20% respectively. In addition, the EU plans to impose an average of 21% countervailing duties on electric vehicle manufacturers that participated in the survey but were not sampled; and impose an additional tariff of 38.1% on electric vehicle manufacturers that did not cooperate with the survey.
SAIC Motor's board secretary said that SAIC Motor is the Chinese car company with the largest export volume in the European market. The EU's countervailing investigation tax ratio is consistent with the ratio of car companies 'sales in Europe from high to low. The core purpose is to curb China's electric vehicle share in the European market.
What is the EU's intention to impose tariffs?
The essence of this move is trade protectionism. On June 12, the spokesperson of the Ministry of Commerce responded to a reporter's question on the EU's disclosure of the preliminary ruling on the countervailing investigation of electric vehicles against China, saying that the European Commission ignored the objective fact that China's advantages in electric vehicles came from open competition, ignored WTO rules, and ignored the comprehensive cooperation of relevant Chinese companies in relevant investigations, artificially constructed and exaggerated so-called "subsidy" projects, abused the "available facts" rule, and cut abnormally high subsidy rates. This is a naked protectionist act. It is to create and escalate trade frictions, and it is to "undermine fair competition" in the name of "maintaining fair competition". It is the biggest "injustice". The EU's move not only damages the legitimate rights and interests of China's electric vehicle industry, but will also disrupt and distort the global automobile industry and supply chains, including the EU.
As far as the EU imposes high tariffs on SAIC, in addition to its large exports of electric vehicles to the EU, Cui Dongshu, secretary-general of the National Passenger Vehicle Market Information Association, told reporters: "One of the reasons is that SAIC did not provide the EU with some information related to commercial secrets, and some of the EU's requirements are unreasonable. Therefore, SAIC's attitude is regarded by the EU as non-cooperative, so higher tariffs are imposed. This kind of practice by the EU is extremely unreasonable and disrespectful to enterprises."
Chinese car companies have significant advantages in battery technology and cost control of electric vehicles, as well as the advantages of the supply chain they have created, and they have gained more and more global market share. According to Reuters, in 2023, China's export of electric vehicles will account for 8% of the EU's electric vehicle market and may reach 15% by 2025. This strong momentum has made the EU feel competitive pressure and attempts to restrict the import of electric vehicles in China through high tariffs and protect the local automobile industry.
Some people believe that European automakers are moving too slowly in the transformation process of electric vehicles, making domestic companies unable to win in the competition. They can only resort to some other tricks, such as setting up trade barriers to slow down the market penetration of Chinese brands. Speed, so that local European companies have time to adjust their strategies and enhance their competitiveness.
The current increase is temporary. The European Commission stated that if a solution cannot be reached with China, the European Commission will issue an announcement by July 4, 2024 at the latest to detail the interim investigation results. The provisional tariffs will take effect on July 5, the day after the announcement.
Under the additional tariffs, which car companies are still competitive and which car companies will be greatly affected?
As the international investment bank and securities flagship of Bank of Communications, Bank of Communications International issued a report on the matter, saying that the temporary tariffs disclosed by the European Commission were slightly lower than the market's previous expectation of 25%. Some automobile companies with economies of scale and supply chain advantages are still competitive despite the tariff increase of about 20%. However, smaller new forces such as Weilai and Xiaopeng have been greatly affected by relying on Chinese production and re-transportation into the EU. It predicts that localized production will become the main strategy for Chinese car companies to enter the European market in the future. The potential impact of EU tariffs is controllable and it is difficult to hinder the pace of Chinese car companies going abroad. BYD, Geely and Great Wall have a complete export layout, and overseas sales are expected to maintain growth.
Faced with the step-by-step tariff increases, BYD is favored by financial groups such as Citigroup because the tax increase rate is lower than that of competing car companies. They believe that this will help BYD achieve share growth in the EU. BYD's exports to the EU are expected to account for 2024. 1/4 to 1/3 of the fiscal year's target total. In early trading today, BYD shares rose more than 7%, leading the rise in auto stocks, which also shows that many parties believe BYD can "outperform".
Financial institution Lyon said in a research note that BYD may respond to tariffs by increasing prices, reducing dealer incentives and loss of profits. It estimates that the direct impact of the additional tariffs on BYD's 2024 earnings will be approximately 500 million yuan to 1 billion yuan, accounting for approximately 1% to 3% of the bank's forecast for net profit. Overall, the bank believes that once BYD's factory in Hungary is put into operation, the impact of tariffs will be significantly reduced. In terms of profitability, its sales are expected to continue to grow and its profit structure will also improve.
Some institutions believe that after the tariff increase, BYD Bicycle will still have a profit of 10,000 - 20,000 yuan in the European market. However, the "Mingjue" owned by SAIC Motor Group has been greatly affected. MG is SAIC's main sales force in the European market. After the tariff increase, its bicycle gross profit is expected to decrease by 40,000 - 60,000 yuan. If the price increases are not increased, it may lose money. Overall, the EU's additional tariffs may lead to a slight decline in the sales of electric vehicles exported by Chinese car companies to the EU in 2024. However, considering other markets, China's electric vehicle exports will still maintain a growth forecast of 30%-40% in 2024.
In the long run, the impact of imposing tariffs will be small. Chinese car companies should avoid risks and resolutely go global.
Cui Dongshu told reporters: "The EU's move will definitely have a certain impact on Chinese car companies in the short term, but in the medium and long term, it will not have much impact. No industry cannot develop because of countervailing, because we are market-oriented competition. After long-term tests, it will prove that our industry still has strong market competitiveness. Therefore, it is necessary to strengthen technology research and development, brand building and overseas market building, for example, producing in the EU and selling locally to avoid risks."
China's automobile export market has performed well in recent years and the coming year. In April this year, preliminary sales statistics of Chinese autonomous automobile companies in some overseas regions reached 184,000 units, a year-on-year increase of 57%; from January to April, the total sales volume of autonomous automobile companies in the overseas market reached 720,000 units, a year-on-year increase of 57%.
Cui Dongshu told reporters: "In recent years, the advantages of China's automobile industry chain with strong resilience have been fully demonstrated, and its sea-going strategy has become increasingly clear and complete. China's own automobile brands started overseas with KD assembly (all-spare parts assembly) and gradually increased the construction of localized industrial chains. With vehicle companies as the leader, parts manufacturers and vehicle companies working together to go to sea have achieved remarkable results. SAIC Motor Group, Geely, Great Wall, etc. have achieved great success. It is worth noting that Chinese car companies have also accumulated some experience in dealing with overseas market risks. 1994-2023 In 2001, among the world's trade remedy cases against China, there were 1646 anti-dumping cases, accounting for 70.7%; there were 212 countervailing cases, accounting for 9%; there were 392 safeguard measures, accounting for 17%; and there were 89 special safeguard measures, accounting for 4%. This has enabled Chinese car companies to cultivate a strong awareness of foreign trade risk prevention and can take pragmatic measures to deal with them."
Experts believe that although the EU's move is waving the stick of "protectionism" and suppressing Chinese car companies, Chinese car companies still need to unswervingly explore the European market and win consumers by creating products with technological advantages and high cost performance. trust. On the one hand, this is because the European automobile industry is relatively mature, and the scale of automobile production and sales and ownership rank among the top in the world. It is the third largest automobile market after China and the United States; on the other hand, Europe is relatively open to the development of electric vehicles. attitude and high acceptance of electric vehicles are the key for Chinese automobile companies to achieve brand advancement.
Liu Daizong, chief representative of the East Asia region of the Institute of Transportation and Development Policy (ITDP), told reporters: "In the face of global trade frictions, Chinese car companies must turn their car brands into world brands if they want to better grasp overseas markets. We must learn to 'transfer interests' and cooperate with each other to achieve common prosperity with the local area. For example, we can avoid certain trade risks and seek better development opportunities by building factories locally or building joint venture brands. I think Chinese car companies should also understand more about Europe's key actions in carbon emissions in the transportation sector and propose products that they support. For example, in the European Transport Carbon Neutralization Action Plan, small electric vehicles are more desirable than large SUVs."
