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Chinese Automakers Ramp Up Hybrid Vehicle Exports to Europe Amid EV Tariff Shift

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Chinese automakers are accelerating exports of hybrid vehicles to Europe, positioning themselves to bypass the European Union’s newly imposed tariffs on electric vehicles (EVs) from China. These tariffs, which aim to protect the EU’s domestic auto industry, do not apply to hybrid models, presenting a strategic loophole for Chinese carmakers like BYD, the country’s leading EV manufacturer.

The Rise of Hybrid Exports

In the wake of EU tariffs of up to 45.3% on Chinese EV imports, introduced in October 2023 to counter alleged unfair subsidies, exports of hybrids have surged. From July to October, hybrid exports from China to Europe more than tripled to 65,800 units compared to the same period last year. Consequently, hybrids accounted for 18% of China’s vehicle exports to Europe in Q3, up from 9% in Q1. By contrast, EV exports dropped slightly from 62% to 58%.

Hybrid vehicles, which combine gasoline and electric power, are gaining traction among European consumers as an economical alternative to fully electric or combustion-engine vehicles, especially during periods of high inflation.

Automakers Adjust Strategies

Faced with slowing car sales in China and high tariffs in North America, European markets are becoming an essential outlet for Chinese automakers. Companies are also exploring local production in Europe to mitigate tariff-related costs. BYD, for instance, is considering manufacturing hybrids and EVs at its Hungarian plant.

New Models Targeting European Consumers

Chinese automakers are rolling out competitive hybrid models for Europe:

  • BYD’s Seal U DM-i, its first plug-in hybrid for the European market, is priced at €35,900, undercutting Volkswagen’s Tiguan PHEV and Toyota’s C-HR PHEV.
  • Geely, China’s second-largest automaker, launched a plug-in hybrid under its Lynk & Co brand in Europe.
  • SAIC Motor is developing a range of powertrain systems tailored to European consumers to offset the high 35.3% tariff on its EVs.

The competitive pricing strategy could reshape the hybrid vehicle market, where European and Japanese automakers currently dominate. However, analysts warn that overly aggressive pricing by Chinese firms may provoke further trade restrictions from the EU.

Global Implications

Japan’s automakers are also leveraging the growing demand for hybrids in Europe, partly to address overcapacity in China. Honda, which experienced a 29% slump in Chinese sales in the first nine months of 2023, is exporting hybrids and EVs from China to Europe.

Chinese automakers’ pivot to hybrids underscores a broader trend of diversification, with companies like BYD and Geely positioning themselves as global players. Nonetheless, their success in Europe will depend on balancing market expansion with regulatory risks.

As the EU hybrid market grows, cost-sensitive European consumers could benefit from these competitively priced models, potentially disrupting the traditional dominance of local and Japanese automakers.

EU Governments Set to Vote on Chinese EV Tariffs Amid Concerns Over Retaliation

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European Union member states are preparing for a crucial vote on Friday to determine whether to impose tariffs of up to 45% on Chinese-made electric vehicles (EVs). The proposed tariffs follow a year-long anti-subsidy investigation, which concluded that Chinese EVs benefit from unfair government subsidies, distorting competition within the EU market. The vote comes amid concerns of potential retaliation from Beijing, which has already initiated its own probes into European imports.

The European Commission, which manages trade policy for the bloc, has proposed the tariffs for the next five years. However, under EU rules, the decision requires a qualified majority, meaning 15 EU countries representing 65% of the bloc’s population must support or reject the proposal. If the vote is split, the Commission can still move forward with the tariffs but may also opt to amend the proposal to gain broader support.

France, Italy, Greece, and Poland have reportedly voiced their support for the tariffs, ensuring there won’t be a blocking majority against the measures. Meanwhile, Germany, the EU’s largest economy and a major car producer, is expected to vote against the tariffs. German automakers, such as Volkswagen, have expressed strong opposition, citing the significant share of their sales that come from the Chinese market, which accounts for almost a third of their global revenue. Volkswagen has labeled the proposed tariffs as “the wrong approach.”

The stance of Spain has shifted in recent days. Previously in favor of tariffs, Spanish officials have now called for a continuation of negotiations rather than imposing immediate duties. In a letter to European Commission Vice President Valdis Dombrovskis, Spain’s economy minister suggested seeking a deal on prices and relocating battery production to the EU. Spanish Prime Minister Pedro Sanchez had also indicated a desire to reconsider the EU’s position during his visit to China.

While some EU countries remain cautious of China’s reaction, the bloc’s relationship with China has become more complex over the past five years. The EU now views China not only as a partner but also as a competitor and systemic rival. In light of China’s 3 million surplus EV production capacity — double the size of the EU market — Europe has emerged as the most viable market for Chinese exports, especially given the 100% tariffs imposed by the United States and Canada on Chinese EVs.

The Commission remains open to further negotiations with China, considering alternatives to tariffs. A possible solution could involve setting minimum import prices based on various criteria, including EV range, battery performance, and vehicle specifications. The current tariff proposal includes additional duties of 7.8% for Tesla and 35.3% for SAIC and other non-cooperating companies, on top of the EU’s standard 10% import duty for cars.

As the EU prepares for this pivotal vote, the outcome will likely have far-reaching consequences for EU-China trade relations, the European automotive market, and the broader global EV supply chain.