EU cuts extra tariff on Tesla Model 3 sedans imported from China to 9%; BMW, VW also benefit from reduced duties

The European Commission has lowered its proposed additional tariffs on many of the EVs exported to Europe from China, including models from Tesla, Volkswagen Group, BMW, BYD, Volvo parent Geely and SAIC's MG Motor.

In a draft decision released Aug. 20, the commission reduced to 9 percent the extra tariff on Tesla Model 3 sedans exported to Europe from the U.S. automaker's Shanghai factory. In July, the commission had said it would apply a 20.8 percent tariff on Tesla's imports from China.

Additional tariffs imposed on the largest Chinese exporters to Europe were also lowered. These include BYD (down to 17 percent), Geely (down to 19 percent) and SAIC ( down to 36.3 percent). The new rates are slightly lower than previously announced.

BMW said that its joint venture in China, which produces the electric Mini, now qualifies for a lower duty of 21.3 percent.

VW Group's Cupra Tavascan will also benefit from a lower 21.3 percent tariff. The electric SUV is built in Hefei, China by the Volkswagen Anhui joint venture for VW Group's Seat business.

The extra tariffs on Chinese EV imports are on top of the 10 percent duties that the EU already levies on Chinese auto exports. They were imposed as part of the EU's investigation into Beijing’s support for the domestic EV industry.

Other companies that cooperated with the inquiry  such as Dongfeng Motor Group and Nio will face 21.3 percent tariffs, while those that did not cooperate will see a 36.3 percent additional levy (see chart, below).

BMW welcomed the commission's decision to bring Spotlight Automotive, its joint venture with Great Wall Motors in China for the production of fully electric Mini cars, into the circle of cooperating companies.

The Mini was not part of Brussels' sample analysis in the run-up to the tariff announcement, which meant China-built electric Minis were initially automatically subjected to the highest tariff level of 37.6 percent.

Seat said it is working with its parent company VW Group to reduce the tariff on the Tavascan even lower than the new 21.3 percent duty.

The commission said some Chinese companies in joint ventures with EU automakers may also receive lower planned punitive duties on China-built EV imports. It also said that no retroactive duties would be imposed.

Tesla's lower rate explained

Tesla had requested a recalculation of its rate, to be based on the specific subsidies the company had received. The commission said it had verified that Tesla received less subsidies from the Chinese government compared with the country's EV makers which Brussels had investigated.

The bulk of benefits received by Tesla were in the provision of batteries at below market value, EU officials have said. Among other state-sponsored programs it benefited from are land-use rights, income tax reduction and grants in various forms, including a national subsidy that all exporting producers received, officials said.

The commission says the additional tariffs are aimed at countering what it says are unfair subsidies that Beijing gives to Chinese EV makers. It said in July that China subsidizes its EV industry to a degree that causes economic harm to European automakers.

The latest changes reflect comments and requests made by automakers after provisional tariffs were released on July 4. Tesla was among automakers calling for a reduction in tariffs, as were VW Group and BMW.

Following the Aug. 20 release of the draft, automakers can request hearings and offer comments within 10 days. The commission will then present a “final determination” to EU states, who will then vote on the regulation. 

The definitive rules are planned to apply by Oct. 30 and they will be in force for five years.

Market share decline

Since the provisional tariffs were introduced in July, Chinese automakers have seen a decline in market share.

The tariffs will likely cut imports from China by a quarter, amounting to a value of roughly $4 billion, according to a recent estimate by Moritz Schularick, president of Germany’s Kiel Institute for the World Economy.

Many European automakers have made clear they are opposed to higher tariffs, with companies such as Mercedes-Benz and Volkswagen Group warning against them, saying they could set off a trade war. China is the biggest market for Mercedes, VW and BMW.

The proposed final duties will be subject to a vote by the EU's 27 member countries. Several countries, including Germany and Hungary, have voiced resistance to the tariffs, but a blocking majority would be needed to stop them.

The final tariffs will be implemented unless a qualified majority of 15 EU members representing 65 percent of the EU population vote against. This is a high hurdle that is rarely reached, although this is a politically charged file.

In an advisory vote in July, 12 countries supported the provisional tariffs, four voted against and 11 abstained, sources said.

China's commerce ministry said it is "firmly opposed to and highly concerned" about the findings and will to take all necessary measures to protect Chinese firms. The draft findings were based on "facts unilaterally determined by the EU side, not on facts mutually agreed upon," the ministry said in a statement.

Bloomberg and Reuters contributed to this report.