Biden's tariffs on Chinese electric vehicles may not deter growing threat

DETROIT – President Joe Biden's plan to quadruple tariffs on Chinese-made electric vehicles is unlikely to prevent the threat of more Chinese cars in the U.S. auto sales market.

The 100% tariff announced Tuesday, up from the current import tax of around 25%, covers electric vehicles imported from China, but could still leave room for often cheap Chinese models to undercut domestic prices and leave loopholes for imports by Chinese car manufacturers into other countries. countries like neighboring Mexico. It also does nothing to address current or future gasoline-powered vehicles imported from the communist country to the US.

Automotive and trade experts say the tariff hike is a short-term protectionism bill that may delay, but will not prevent, Chinese automakers from coming to the United States with electric vehicles.

“They will be here. It's inevitable. It's just a matter of time,” said Dan Hearsch, co-leader of the Americas automotive and industrial practice at consulting firm AlixPartners. “Western automakers and suppliers should really up their game and prepare to take this on or play with them. It's one or the other.”

Tariffs on electric vehicles, including other increases related to battery materials, were among new tariff rates on $18 billion worth of Chinese imports.

For decades, Chinese auto companies have said they will begin selling vehicles in the United States under their own brands, but none have done so.

The quality of vehicles from Chinese automakers has improved significantly in recent years, as Beijing has helped by subsidizing their operations to increase domestic production. The rise of domestic automakers has led to a rapid deterioration in market share in the country for global automakers such as General Motors.

Global players have made more inroads into the US market in recent years. The so-called big three American automakers: GM, Ford engine and Chrysler, now owned by stellantis – have seen their market share in the country deteriorate from 75% in 1984 to about 40% in 2023, according to industry data.

GM and others have found it difficult to compete with economical and traditional Chinese vehicles, including electric vehicles. For example, a small electric vehicle from Warren Buffett-backed BYD called the Seagull starts at around $10,000 and is reportedly generating profits for the increasingly influential Chinese automaker.

Although the Seagull is not yet sold on US soil, BYD is expanding its vehicles globally and some believe it is only a matter of time before more Chinese-made vehicles arrive in the US.

Even with the new 100% rate, its price would likely be in line with or better than many electric vehicles currently on sale in the US.

“Ultimately, we think protectionism from the West could remain a near-term hurdle for Chinese EV and parts manufacturers seeking rapid global expansion, but we think it is unlikely to stop China's EV momentum. China in the long term,” said Morgan Stanley analyst Tim Hsiao. he said in a note to investors this week.

Although some automakers currently import gasoline-powered vehicles from China to the United States, the numbers are small. Wall Street analysts, citing the China Association of Automobile Manufacturers, report that fewer than 75,000 vehicles were imported into the United States last year.

Vehicles made in China and currently sold in the U.S. include GM's Buick Envision, Ford's Lincoln Nautilus and two all-electric vehicles from Geely-owned Volvo and its EV spin-off startup. Polar Star.

Polestar, with a small range of vehicles, is significantly dependent on its Chinese imports. The company, in a statement, said it is “currently evaluating the Biden Administration's tariff increase announcement,” saying it believes “free trade is essential to accelerate the transition to more sustainable mobility through increased adoption of electric vehicles.” “.

Biden's focus on Chinese-made electric vehicles (and the exclusion of gasoline-powered vehicles from higher taxes) fits with the White House's clean energy agenda, which has emphasized vehicle production and adoption electric vehicles, as well as better charging infrastructure in the United States.

“We're focused on electric vehicles in terms of imposing tariffs, because that's where we've made hundreds of billions of dollars in public investments. We've made those investments to build resiliency in our cleantech supply chains. And that's our objetive”. focus here,” a senior administration official told reporters this week.

U.S. officials may be getting a warning sign from Europe, where Chinese automakers have rapidly flooded markets with gas-efficient electric vehicles and undercut domestic automakers.

Chinese companies accounted for 8% of all-electric vehicle sales in Europe in September and could increase their share to 15% by 2025, the European Union said in October 2023. The EU believes Chinese electric vehicles are undercutting prices of local models by approximately 20%. %.

The Biden administration's new EV tariffs could have a ripple effect on other countries, including Europe, if they succeed in curbing Chinese exports, according to Coco Zhang, vice president of ESG research at ING Group.

He said similar tariffs elsewhere could force Chinese companies to move more quickly to establish local production operations or joint ventures with other companies in a bid to reduce export costs.

“From China's perspective, if there can be supply or other types of partnerships, they can still find their way to the US market,” Zhang said.

Such moves would be reminiscent of how Japanese automakers such as Toyota Motor and Nissan Motor, as well as South Korea's Hyundai Motor, including Kia Motors, entered the U.S. market in recent decades.

– CNBC's Rebecca Picciotto and Michael Bloom contributed to this report.