The proposed tariffs by the European Commission on Chinese-made electric vehicles (EVs) have sparked concerns among European car manufacturers about potential retaliatory measures from China. The European Commission’s plan to impose additional duties of up to 38.1% on Chinese EVs could significantly impact European automakers, especially as they navigate a competitive market already challenged by rising domestic competition in China.

Implications for European Car Manufacturers

European carmakers are bracing for possible repercussions if China decides to retaliate with tariffs or other trade barriers. Industry executives fear that such measures could undermine their competitive edge in the Chinese market, which is crucial for their global operations. The threat of counter-tariffs comes at a time when European automakers are already grappling with an influx of domestic Chinese competitors in the EV sector.

German Carmakers Under Pressure

German car manufacturers are particularly vulnerable to potential Chinese counter-measures. In 2023, nearly a third of their sales were generated in China, highlighting the region’s importance to their overall business. Despite most vehicles being produced locally, high-end models remain a significant part of their offerings in China.

Porsche, a majority-owned subsidiary of Volkswagen, faces the highest exposure. It imports all of its vehicles sold in China, which constitutes about 25% of its global sales. Given that Porsche’s imported vehicles include high-margin luxury models, any counter-tariffs could have a pronounced impact on its operating profit. Stifel Research estimates that the negative effect could range between 4% and 10%.

Porsche’s luxury branding might offer some leeway for price adjustments in response to tariffs. However, the company has already faced challenges, including a 15% decline in deliveries in China last year and a further 24% drop in early 2024, partly due to the country’s economic difficulties. In response, Porsche is investing in a research and development facility in Shanghai and has tailored the Taycan EV for the Chinese market.

Volkswagen, while less exposed than Porsche, still has significant stakes in the Chinese market. Only 2.5% of the cars Volkswagen sells in China are made in Germany. Despite this, the company is keen to maintain and expand its 14.5% market share amid stiff competition from local carmakers. Volkswagen Group China, including Porsche, sold over 3.2 million cars in 2023, with most of these vehicles produced locally. Audi, Volkswagen’s premium brand, has a slightly higher proportion of imported vehicles.

Mercedes-Benz is heavily invested in the Chinese market, which accounts for around 36% of its sales. Of the cars sold in China, about 80% are locally produced, with imports such as the GLE SUV and S-Class sedan making up the rest. If counter-tariffs are imposed, it could affect the sales of these high-end imported models, which are popular among Chinese consumers.

BMW also faces significant exposure, generating nearly a third of its sales in China. About 13% of these are imported from Germany, including models like the i4 and 7 Series. BMW is planning to produce its new “Neue Klasse” model series locally starting in 2026. The company’s joint ventures in China, including BMW Brilliance Automotive and Great Wall Motor Co., also export vehicles to Europe that might be subject to the proposed European tariffs.

Impact on Other European Automakers

Other European manufacturers are similarly concerned about the potential for Chinese retaliatory actions. Swedish carmaker Volvo, which is majority-owned by China’s Geely, derives a quarter of its sales from China but only about 10% of its profits. With imported vehicles making up about 4% of its Chinese sales, Volvo could be impacted if China imposes tariffs on these models.

Stellantis, the Franco-Italian automotive group, has relatively low exposure to China, except for its recent investment in Chinese EV maker Leapmotor. Stellantis plans to export two EV models from China by the end of the year, potentially placing it at risk if counter-tariffs are enacted.

Ferrari, owned by Stellantis, relies exclusively on imports for its Chinese sales. Although Ferrari’s sales in China constitute only 9% of its global total, the luxury brand might leverage its pricing power to offset the impact of any tariffs.

French automaker Renault has minimal exposure to China, operating through joint ventures with Jiangling Motors and Brilliance Auto, while Nissan has a modest market share of about 3%. Renault’s Dacia Spring EV is produced in China by local partner Dongfeng, and the company has announced a joint venture with Geely to develop combustion and hybrid engines.

Navigating the Uncertain Trade Landscape

As European automakers face potential trade disruptions, the industry is preparing for a complex and uncertain landscape. The European Commission’s proposed tariffs and the possibility of Chinese counter-measures create a challenging environment for manufacturers already contending with intense competition in the EV market. The outcome of these trade tensions will likely shape the future strategies of European carmakers in the world’s largest automotive market.

(Adapted from Reuters.com)