Import duties of 40 to 50 percent will be needed to shield the European auto industry from China-based producers, according to a new report.

The European Commission launched an investigation into subsidized electric cars from China in 2023 and warned that subsidy duties might be imposed nine months later. With the deadline looming, a report from the Rhodium Group warns that duties on imports alone probably won't be enough to slow market gains for Chinese manufacturers.

According to the research, duties in the 15 to 30 percent range are expected as European Commission regulators seek to shield local automakers - which account for seven percent of the EU's GDP - yet even at the higher end of that range, China-based producers will still be able to generate comfortable profit margins.

While going as high as 50 percent would make things more challenging, Rhodium Group reckons that policymakers could turn to other tools, such as tightening cybersecurity requirements, to stem the flow.

EU imports of EVs from China have grown spectacularly in recent years, increasing from $1.6 billion in sales in 2020 to $11.5 billion in 2023. They account for 37 percent of all EV imports in the bloc. EVs in China are considerably cheaper than those in the EU. The Rhodium Group cited Volkswagen's ID.4, which sells for nearly 50 percent more in the EU than in China, and a larger gulf exists for some Chinese producers. The result is bigger profit margins.

"Increasingly, Chinese and foreign manufacturers are taking advantage of China's cheaper labor and energy prices, its more developed battery ecosystem, and [its] government subsidies to produce in China for the European and third markets," said Rhodium Group's report.

However, simply slapping on duties at the top end of the forecast might not be enough, particularly considering the incentives being given to firms to export to the EU, the world's second-biggest EV market.

So what to do? In an April 2024 speech, EC executive vice president Margrethe Vestager discussed the prospect of trustworthiness in technology, which encompassed factors such as cyber security, labor, and environmental footprint, all of which could impact manufacturers exporting from China.

The issue is tricky. The European market is a lucrative one for exporters, who stand to enjoy far greater profit margins than possible domestically. Duties alone are unlikely to have much effect in the short term, and other measures - for example tightening cybersecurity requirements - could be challenging to implement.

Instead, policymakers could opt to see what happens over the next year. While the figures might seem grim for EU automakers now, an increase in shipping costs and changes to EV purchasing subsidies in Europe might make measures beyond those expected this summer unnecessary. ®

https://www.theregister.com//2024/04/30/report_eu_duties_electric_vehicles/