Chinese EVs Pile Up at Ports Amid Calls for Increased Tariffs

The automotive industry in China has made great progress over the past 10 years. While originally known for producing imitations of Western products, China is now making many cars that rival the best in the world. Thanks to its large manufacturing capacity, China is producing them in large quantities.

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

So, why are 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, those cars are just sitting there unused. The question now is: should they be given a chance?

Buyer Faith Is Difficult to Grow

One reason people lack faith in Chinese products, including EVs, is perhaps the Western perception of them. 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 credibility, respectability, and engineering knowledge. However, even after that, Chinese automakers still fail to inspire customer loyalty. Customers still run towards brands like BMW and Ford, which are 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 car-making country. It's not going to happen overnight, as Chinese car manufacturers still lack strong brand images in the world. Plus, they lack a solid dealer network outside the Chinese market, which is another reason Chinese car companies struggle against the establishment.

High Tariffs on Chinese Imports Make the Situation More Challenging

High tariffs on Chinese imports make the situation even more challenging. President Joe Biden has already enacted the law: the 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, the EU plans to raise import tariffs on Chinese EVs from 10% to 30% as a measure to address this. The EU is also investigating whether the prices for Chinese electric vehicles are artificially low. If the investigation finds 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 couldn't justify going much higher than that. "Duties need to be aligned with the investigation's findings on the scale of subsidization in China," she said.

Furthermore, the EU would then need to explore "tools and defensive instruments" to curb the flow of Chinese EVs 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. According to Kratz and experts at the Rhodium Group, duties of 40% to 50% may be required "to make the European market unattractive for Chinese EV exporters. " 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 consulting firm Sino Auto Insights managing director 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

Chinese companies can solve this conundrum by targeting business buyers instead of private consumers. Businesses, primarily concerned with costs, would find the prices of Chinese EVs more lucrative for their profits.

In many parts of Europe (especially in the UK), the fleet market is bigger than the private market. Selling bulk to fleets (like rental or taxi companies) will put more cars on the road. While building consumer trust and brand image by taking this step might take a while, 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 their endeavors, so they probably 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 EV makers.

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

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