The European Union will follow the U.S. and impose higher tariffs on Chinese electric vehicles to defend its industry from what officials called “unfair subsidization, which is causing a threat of economic injury to EU BEV producers.” The move to raise tariffs comes at a time when many ultra-competitive and lower-cost EVs are undercutting European automakers like Volkswagen and Mercedes-Benz on their home turf. 

In the U.S., the tariffs on Chinese EV imports recently quadrupled from 25% to 100%. In the EU, the tariffs were at 10% but now may go as high as 38.1%, according to the provisional conclusion reached by the body.

China outpaced Europe and North America

China is the world’s largest plug-in electric car market with sales levels exceeding the rest of the world combined. During the first four months of the year, more than 2.5 million plug-ins have been sold in the country (including 1.65 million EVs), taking 40% of the total volume. At the same time, Europe was under 1 million units (0.6 million EVs) and 21% plug-in share.

The European Commission—the EU’s executive arm—had been investigating “unfair subsidies” across EV value chains in China for months, claiming that massive government financial assistance from Beijing was key in driving down the cost of cars and production to levels European automakers cannot compete with. The commission also said the new tariffs go into effect as soon as July 4 “should discussions with Chinese authorities not lead to an effective solution.”

Interestingly, the new EU tariffs will not affect every Chinese EV manufacturer equally. The commission said that some automakers cooperated with the investigation more than others did. Those that were deemed to have participated will see lower tariffs than ones that reportedly did not, according to Reuters. 

The new weighted average tariff for the companies who did cooperate in the investigation but have not been will be 21%. Other all-electric vehicle manufacturers, who were said to have resisted the investigation, will face tariffs as high as 38.1%.

Besides those general two categories, there are three individual duties for three known major Chinese producers:

• BYD: 17.4%
• Geely: 20%
• SAIC: 38.1%

Let’s recall that SAIC has several brands such as MG, whose hot-selling MG 4 is quickly displacing purchases of European vehicles. Chinese conglomerate Geely also owns multiple brands, including Volvo, which is now working on how to produce more EV models in Europe, as well as Polestar, Zeekr and Lotus too. Several of those brands’ EV models are made in China.

Because the car business usually does not operate on very high margins outside of the luxury segment, even a 5-10% increase makes competition challenging. The companies that will move from 10% to 38.1% tariff will have a really hard time—at least in theory.

None of the numbers above are yet definite. According to Reuters, the anti-subsidy investigation is set to continue until Nov. 2. Then Europe will probably see definitive duties, typically for five years, and maybe more individual duties for sampled manufacturers, including potentially Tesla as well—the Model 3 sold in Europe is made in China, for example. 

That brings up an interesting point of this tariff policy: the EU even investigated and targeted its own automakers who also build cars in China and sell them in Europe, like BMW. Both the Bavarian automaker and Tesla are considered “cooperating companies” thus far, so they’ll only face 21% potential tariffs for now. 

Another interesting development is that not all EU countries were happy with the decision. The higher tariffs were opposed by Germany, which is heavily engaged in China; Sweden, which counts China’s Geely as the owner of Volvo; and Hungary, which is also working with China on deep investments into things like battery manufacturing.

Now, the major question is whether or not China will retaliate. Counter-tariffs from China could impact the automotive industry or other goods imported from that country. According to the Associated Press, Chinese Foreign Ministry spokesperson Lin Jian “blasted the EU’s investigation as ‘typical protectionism’ and said Beijing would ‘take all measures necessary to protect our legitimate rights and interests.'”