The electric vehicle (EV) sector could generate up to US$10 billion annually by 2028. The fact that EVs accounted for almost one in five cars sold globally in 2023 shows how fast the sector is growing.
Boosted by government subsidies and incentives worldwide, EV manufacturing experienced a relative boom in the midst of otherwise flat economic trends. Its growth projections are so promising it represents a 2020s gold rush in which economic superpowers are scrambling to secure a share.
China dominates the sector today, accounting for nearly 60% of all new electric car registrations globally in 2023, according to the International Energy Agency. The country’s biggest EV maker—BYD—overtook Elon Musk’s Tesla empire to become the world’s biggest producer last year. Since then, efforts have been focused on toppling the republic’s monopoly.
As the US and Europe make moves to ensure China’s market dominance doesn’t overspill into their regions, tensions and fears of a global trade war loom large.
Tariffs, taxes, and levies, including anti-dumping duties, are designed to safeguard domestic industry. They have been widely used— alongside import and export quotas—to protect domestic production from unfair competition for centuries.
The US, EU, and others have been honing policies to protect domestic producers’ market shares in EV sales from China’s cheap imports.
But isn’t it unwise to stifle international trade? US policymakers currently consider such trade levers sensible. The country’s Constitution empowers Congress to set tariffs, which is partially delegated to President Biden. In a move that practically guarantees Chinese EVs will not penetrate the US, Biden slapped a 100 percent tariff on imports from China. The EU, meanwhile, has implemented a range of tariffs targeting Chinese imports, the highest at nearly 40 percent.
So far, Beijing has appealed to the World Trade Organization to force EU officials into a rethink. But, it is likely that maneuvers happening in the background will be more impactful than diplomatic moves to tackle protectionist policy.
Circumventing Trade Barriers
However, as trade war tactics are increasingly called into play, manufacturers worldwide are carving out strategies to protect their market shares.
BYD—which stands for Build Your Dreams—is currently scoping Turkey for potential production sites. This is despite Turkey having introduced a 40 percent tariff on Chinese-built EV imports. BYD already has a significant worldwide footprint in all-electric buses and vertically integrated semiconductor, electronics, battery-making, and automotive business units in China. Setting up shop in an EU trading bloc-based country like Turkey is a smart move.
Similarly, Chinese automotive manufacturer Geely—the majority shareholder in Sweden’s electric vehicle (EV) brand Polestar—has announced plans to shift production of the next two versions in the Polestar range from China’s mainland to sites in the US and South Korea.
Meanwhile, the free trade agreement between the US and its neighbor Mexico has BYD scoping sites for production facilities there, too. Mexico is already the world’s seventh-largest passenger vehicle manufacturer, with an output of 3.5 million vehicles annually. In the current climate, manufacturers will consider following Tesla’s example in Mexico.
A Dead-end Direction?
BMW’s CEO Oliver Zipse described the tariffs as a “dead end”. They will not strengthen European manufacturers’ competitiveness, Zipse claims. Germany’s automotive association VDA echoed Zipse’s concerns, warning that western carmakers exporting from China would lose out.
German-headquartered companies Volkswagen and Mercedes-Benz are cases in point. Both manufacture in China at scale. And, both fear that EU tariffs against China’s EV producers risk retaliation with counter-tariffs.
“The value of passenger car exports from Germany to China last year was more than three times the value of imports from China, and the value of exports by component suppliers was four times as much as the value of imports,” says the VDA.
Endgame for Industry
Some feel that Chinese-built cars will still make it to European markets at lower prices than domestic-built cars. This is because production costs are so much lower in Asia than the costs domestic producers are forced to pay.
One thing that perhaps cannot be disputed is that the introduction of EV tariffs by the US and EU has brought the matter of price gaps firmly to the fore. Ultimately, vehicle buyers are the drivers of successful EV markets. EVs must be available at a price point that works for them, or sales will not reach the levels needed to meet climate or corporate carmakers’ goals.
