The incentives given by the Chinese Government to its new energy vehicle (NEV) manufacturers have been a hot topic in the industry since they started accelerating their expansion to Europe a few years ago.
To fight what the European Commission called last year an ‘unfair trading practices,’ a new round of tariffs was imposed exactly a year ago ranging from about 7.8% to 38.1%.
The figures were calculated based on the transparency from each brand during EU’s investigation.
The duties came on top of the existing 10% tariff on imported electric vehicles from China.
On the latest episode of The Verge‘s podcast Decoder, Ford CEO Jim Farley argued that China’s dominance in the auto industry is mostly due to this government support.
“The competitive reality is that the Chinese are the 700-pound gorilla in the EV industry,” Farley stated.
The chief executive of the Detroit automaker added that “there’s no real competition from Tesla, GM, or Ford with what we’ve seen from China.”
According to Farley, China “is completely dominating the EV landscape globally,” which comes from “great innovation at a very low cost.”
“There are hundreds of companies, and they’re all sponsored by their local governments, so they have huge subsidies,” adding that it includes brands like BYD and Geely.
But it also includes “companies like Nio and Xiaomi, many of which have never been in the car business before, and that’s a big advantage for them.”
The Centre for Strategic & International Studies reported last year that between 2009 and 2023, China’s government spent at least $230 billion to support domestic electric vehicle manufacturers.
This is where the Chinese electric vehicle maker operates its three EV factories.
The comments come weeks after Rivian‘s founder and CEO RJ Scaringe said that the success of Chinese EV makers also comes from lower costs on both manufacturing and labor.
“It’s inconceivable that Western markets would not allow their domestic manufacturers to produce in China,” while allowing “freely those Chinese companies to produce in China and sell.”
“We’ve taken lots of cars apart, every car manufacturer does,” and “there’s not something magical when you take it apart that’s allowing these really impressive cost structures,” Scaringe said.
According to Morgan Stanley, Chinese automakers are still expected to expand further into the United States in the next decade — even with the tariffs in place between the world’s two largest economies.
The firm’s analysts reminded that Jim Farley praised Xiaomi‘s SU7 late last year, on the Everything Electric show, where he said that he “flew one from Shanghai to Chicago, and I’ve been driving it for six months now and I don’t want to give it up.”
“When Ford CEO Jim Farley praises a competitor’s car (Xiaomi SU7) — saying he aims to make one just as good or better in a few years… you’ve likely got a winner on your hands,” the note said.
Late last year, upon concluding that BYD and other Chinese carmakers benefited from government subsidies, the European Commission imposed tariffs on electric vehicle imports.
EU member states have encouraged Chinese carmakers to set up factories in Europe as the industry on the Old Continent faces severe headwinds.
In March, and according to the Financial Times, the EU opened a foreign subsidy probe into BYD‘s passenger plant in Hungary.
Setting up local production in Europe means that these companies will be exempt from these tariffs. However, the EU’s top trade official, Sabine Weyand, stressed that these companies must still follow European rules to keep competition fair.
“We are not interested in investments that are simple assembly operations without added value and without technology transfer,” Weyand said.
Instead, the expectation is for investments that create real economic value and include technology transfer. By then, Weyand added that the Commission has ways to enforce this.
In the United States, Chinese electric vehicles also face steep tariffs as a way to enforce fair competition.
Last year, the Biden Administration imposed a 100% tariff on EVs and a 25% tariff on EV batteries coming from China.
In April, Donald Trump announced new, country-specific tariff rates, including a 34% baseline tariff on China, which made the duties on electric vehicles jump to at least 134%.
Global trade tensions increased for the following months, with China and the US ending up with a trade deal, according to which the two countries will temporarily reduce tariffs, effective through November 10.
Under this agreement, the US has reduced its tariffs on Chinese imports from a peak of 125% to 10%, while China has lowered its retaliatory tariffs from 84% to 10% on US goods.
The trade war led China and the EU to reopen discussions on the European Commission‘s tariffs on Chinese vehicles.
Furthermore, and as they seek to avoid higher tariffs while expanding their presence in the European market, a group of Chinese automakers — including Nio, XPeng, and Xiaomi — took part in discussions between the two blocs in July.
EU Trade Commissioner Šefčovič and China’s Commerce Minister Wang agreed to investigate the possibility of setting minimum prices for the imported EVs as an alternative to tariffs, China’s initial proposal.
