Proposed EC tariffs on Chinese EV imports alone insufficient to boost European production, sources say

Aluminium and lithium market participants told Fastmarkets the European Commission’s provisional additional duties on Chinese electric vehicles (EVs) are supportive for production but they were not convinced they would be enough to reverse the fortunes of the weakening domestic European auto market

The European Commission notified car makers on Wednesday June 12 that it will provisionally apply additional duties on Chinese electric vehicles (EVs) from July 4.

These duties vary in level and will be applied on top of the current 10% applied to all imports of Chinese EVs.

The levels of the duties depend on the extent to which the companies complied with an EU investigation into claims of a flood of government subsidized cars into the region, which it deems uncompetitive to the domestic market.

The Commission has announced specific charges for three EV manufacturers:

BYD – the world’s largest EV manufacturer – will face a 17% tariff, Geely will face 20%, while SAIC will face an additional 38.1% tariff.

All EV producers that did not co-operate with the investigation will be subject to a tariff of 38.1%.

It is not just Chinese brands that are set to be affected by the provisional tariffs though. European car brands that manufacture EVs in China will also face an additional tariff up to 21%, while Tesla “may receive an individually calculated duty rate”, the Commission said.

China’s Commerce Ministry has labelled the move as “protectionist”.

“This is a naked protectionist act, creating and escalating trade frictions, and ‘destroying fair competition’ in the name of ‘maintaining fair competition’,” China’s Commerce Ministry said in a statement on Wednesday.

Speaking to the Financial Times, EU trade commissioner Vladis Dombrovskis said that “we have no option but to act in the face of soaring imports of heavily subsidized battery electric vehicles, from China, this puts our industry at risk of injury.”

Dombrovskis added that the three-week period between June 12 and the implementation of the tariffs will be used to negotiate with the Chinese central government to “remedy the situation.”

The move by the European Commission follows – at a smaller scale – measures by the US government. The US applied 100% tariffs on Chinese EVs imported into the country on May 14, rising from 25% previously.

The reaction to the implementation of these more aggressive tariffs from the US has been muted among Chinese EV producers.

“[While] the [US] tariff on electric vehicles looks especially scary, China’s EV exports aren’t dependent on the US market [and] the European Union is currently China’s largest export destination for EVs,” an industry analyst told Fastmarkets at the time.

Impact on European domestic production

Reaction to the announcement has been mixed both among governments as well as commodity markets.

“The tariffs should support European automotive production, which otherwise has been struggling,” one aluminium trader said.

The share of EV production in key manufacturing hub Germany has been declining across recent months, according to data released by German automotive association VDA.

In January, Germany’s share of EV production was down by 1.5 percentage points year on year to 28.4% of all automotive production, the lowest level since September 2022, with participants noting the impact of ending government subsidies and increased consumer cost pressures.

Total German production was at 307,500 vehicles in May 2024, according to VDA, a decline of 18% year on year, with participants noting a largely struggling European automotive sector.

“Overall, the measures now announced by the EU will not solve the challenges facing the European and German automotive industry,” VDA president Hildegard Muller said in a public statement.

“On the contrary, the EU Commission’s intention to impose countervailing duties could quickly have a negative impact in the event of a trade conflict. Instead, the focus must now finally be on Europe as an industrial location. Attractiveness as a location and competitiveness are the best prerequisites for a successful transformation and for a leading position in international competition,” Müller added.

Premiums for primary aluminium in Europe have increased since the beginning of the year, despite slow European industrial output, spurred by rising freight costs and tight availability of units across the region.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $325-350 per tonne on Tuesday June 11, unchanged since May 21 but rising from $190-215 per tonne at the beginning of the year.

“I’m hopeful the European tariff on Chinese EVs will increase demand for [primary foundry aluminium]. [The tariff] is supportive for the European automotive industry as a whole, but wider demand for vehicles isn’t good,” a second trader said.

Fastmarkets assessed the aluminium primary foundry alloy silicon 7 ingot premium, ddp Germany at $485-520 per tonne on Friday May 31, edging up from $450-520 per tonne one month earlier but remaining largely stable since the beginning of the year amid quiet spot market conditions.

Lithium market reaction muted

Though the primary focus of the implementation of the tariffs is to support and protect the domestic industry in the region, reaction from the lithium market has been somewhat muted.

Though some participants have voiced hopes that the tariffs could offer support for domestic auto makers and the production of EVs domestically, many believed that the tariffs alone would not offer significant support for consumption of battery materials in the region.

“The inflow of Chinese EVs into the region is not the only issue [facing the industry]. We’ve already seen governments withdrawing subsidies for EVs which will dampen demand,” a trader told Fastmarkets.

Participants pointed to the slow ramp-up in production of EVs and batteries in the region as the primary challenge.

In December 2023, the German government canceled its so called “environmental bonus”, which was a subsidy of up to €4,500 ($4,810) to support the purchase of EVs, as part of a cost-cutting exercise amid its budget crises.

At a similar time, France announced that its EV subsidy scheme would exclude Chinese EVs, and some EVs manufactured in China due to the concerns over the CO2 footprint of the vehicles.

EV demand has slowed globally and has begun to adversely affect some companies operating in the market.

Belgium-headquartered Umicore, which manufactures cathode active materials, noted on Wednesday that “sharp slowdown in the growth of demand for EVs” had meant that demand projections for the battery business had declined in recent weeks.

The company noted specifically that the reduction in its sales guidance was a direct result of “a delay in the anticipated volume ramp-up of new contracts in Europe as customers are scaling back their electrification ramp-up plans.”

A further challenge to the effectiveness of the tariffs is that even after they are applied, many Chinese-produced EVs still remain more cost competitive than EVs produced domestically in Europe. This has prompted some discussion over the effectiveness of the measures.

“We saw European-made EVs increase in price by an average of 20% last year, while Chinese prices declined by 2%,” Fastmarkets battery demand analyst Phoebe O’Hara said, adding “this is a great indication of why Chinese EVs will continue to be more competitive than European cars, even after tariffs are applied.”

“Chinese OEMs [original equipment manufacturers] are now reaping the rewards of their long-standing commitment to produce mass market vehicles, with their economies of scale allowing OEMs to have more flexibility with their profit margins, and continue to make profit in Europe’s market despite the tariffs. In all, little change will be seen in terms of Chinese EV sticker prices, nor Chinese OEMs decisions to bring models to the region,” O’Hara added.

Battery grade lithium prices in Europe fell on Thursday amid slow demand regionally and falling prices in Asia.

Fastmarkets assessed the lithium hydroxide monohydrate LiOH.H2O 56.5% LiOH min, battery grade, spot price ddp Europe at $13.50-15.00 per kg on Thursday, down from $14.00-15.20 per kg in the previous week.

Similarly, Fastmarkets assessed the lithium carbonate 99.5% Li2CO3 min, battery grade, spot price ddp Europe at $13.75-15.00 per kg on Thursday, down from $14.00-15.20 per kg in the previous week.

Though companies such as Umicore are expecting a weaker 2024, they still expect volumes of sales to “be equal or slightly lower than last year.”

“Headlines often paint a very bearish tone for EVs but we are still expecting double-digit growth in EV consumption globally,” one lithium market participant told Fastmarkets.

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