Chinese EVs Pile Up at Ports Amid Calls for Increased Tariffs

The automotive industry in China has seen much progress over the past 10 years. The country, while originally known for producing imitations of Western products, is now making many cars that rival the best in the world. And, thanks to the country's manufacturing capacity, China is producing them in large quantities.

One of the more prominent Chinese products taking the world by storm is electric vehicles. Chinese electric vehicles are actually quite well-reviewed. At the very least, they match the same vehicles manufactured by European companies. The level of range in models, quality, and technology are on par; some have even exceeded the Europeans.

So, why are Chinese EVs piling up at European ports and spending up to 18 months doing nothing but being parked in car parks? It's believed that Chinese cars can't find buyers in Europe. European consumers are probably wary of Chinese products and unfamiliar with the country's brands' images. But is there something more? Perhaps Europe is heavily influenced by the US' outright dislike of Chinese EVs.

Whatever the reason is, those cars are just sitting there without being used. The question now is: should they be given a chance?

Buyer Faith Is Difficult to Grow

One guess for the lack of faith in Chinese products, including EVs, is perhaps due to the Western perception of Chinese products. Buyers are commonly suspicious of products "made in China," due to the country's penchant for copying or cloning existing products but selling them at a much cheaper price.

However, China has made some strategic purchases in the auto sector. Chinese companies acquire parts of brands like Volvo, Lotus, and MG. They hope these names will lend Chinese companies some credibility and respectability, as well as engineering knowledge. However, even after that, Chinese automakers still fail to inspire customer loyalty. Customers still run towards brands like BMW and Ford, known entities in the auto industry.

Japan once experienced the same thing back in the '60s and '70s. Sentiments against the nation that went against the Allies were still strong in people's consciousness. So, western buyers like to put down the Japanese products as lacking in technology and looking generic compared to the European designs. But the country grew its auto industry, developing reliable, cheap, and also stylish products until they became a powerful industry player in the '90s and 2000s.

China will have to take its time building its reputation as a trustworthy, reliable car-making country. It's not going to happen overnight as Chinese car manufacturers still don't have strong brand images in the world. Plus, they lack a solid dealer network outside the Chinese market itself, which is another reason why Chinese car companies struggle against the establishment.

High Tariffs on Chinese Imports Make the Situation More Challenging

The situation is made even more challenging by high tariffs on Chinese imports. President Joe Biden has already laid down the law: tariff rate on Chinese EVs in 2024 will increase from 25% to 100%.

The president said in May this year, "I'm determined that the future of electric vehicles will be made in America by union workers."

It's easy for Biden to make that declaration because the US doesn't buy plenty of EVs from China. Europe, on the other hand, is a different matter. The EU region is one of the biggest overseas markets for China's EV manufacturers. But the US decision to raise the tariffs and protect its domestic auto industry may inspire the European Union to also defend their automakers.

Already, there's a plan in the EU to raise import tariffs on Chinese EVs from 10% to 30% as a measure to do that. The EU is also investigating whether the prices for Chinese electric vehicles are artificially low. If the investigation finds that they are, the EU will announce extra import duties in early July.

The director of research provider Rhodium Group, Agatha Kratz, acknowledged to CNN that the rise in US tariffs on EVs made in China makes it easier for the EU to triple its own rates. However, she also said the EU wouldn't be able to justify going much higher than that. "Duties need to be aligned with the findings of the investigation on the scale of subsidization in China," she said.

Furthermore, the EU would then need to explore "tools and defensive instruments" in an attempt to curb the flow of Chinese EVs coming into Europe. These might include targeting data security and strict enforcement of some standards, particularly labor and environmental ones.

Raising EU Tariffs Doesn't Guarantee Success

Even if the European Union raises tariffs on Chinese EV imports, success is not guaranteed. Chinese brands have much lower production costs than European ones. Duties of 40% to 50% may be required "to make the European market unattractive for Chinese EV exporters," according to Kratz and experts at the Rhodium Group. For China's largest EV manufacturer BYD, it might even have to be higher to be effective. But duties as high as these numbers would be highly unlikely.

The move could even hurt European automakers. Many European companies benefit from manufacturing their cars in China to cut costs, which they later sell back in Europe. It's not a good idea to provoke China's anger, which would present more challenges for European brands selling their cars in China.

BMW CEO Oliver Zipse certainly believes there's a risk in doing that. He warns the EU to proceed with caution. "We don't think that our industry needs protection. You can easily endanger [our] advantage by introducing import tariffs," he told analysts.

Meanwhile, the managing director at consulting firm Sino Auto Insights, Tu Le, also emphasized to CNN that "the EU's situation is very different than the US. The German automakers rely so heavily on the China market for significant sales [and] profits." Therefore, he doesn't think the EU will be keen on trying something heavy-handed.

The Way Forward

There's a way out of this conundrum for the Chinese companies. Instead of targeting private consumers, Chinese companies should try targeting their products at business buyers. Businesses, mostly concerned with costs, would find the prices of Chinese EVs more lucrative for their profits in the end.

In fact, in many parts of Europe (especially in the UK), the fleet market is bigger than the private market. Selling in bulk to fleets (like rental or taxi companies) will put more cars on the road. While it might take a while to build consumer trust and brand image by taking this step, everyone must start somewhere. At least, if these cars are sold to the fleet market, they will no longer sit idle in ports and car parks.

The Chinese are known to be persistent in any endeavor they do, so it's probable they have already set up plans to turn things around. However, Chinese vehicle companies must learn from the Japanese to be patient. It may take decades for them to succeed.

Final Thoughts on Chinese EVs

Consumers don't yet have faith in Chinese brands for electric vehicles. The lack of brand image and years of bad reputation also hinder Chinese companies from distributing their products on the road. With the US jacking up tariffs, Europe is set to follow, presenting even more challenges for Chinese EV makers.

However, if the Chinese carmakers do learn from the Japanese, they still have hope of turning things around. We'll just have to wait and see if they'll succeed.

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