With the EV sector set for a transformative decade, the urgent need to decarbonize transportation is still a leading topic. As global competition gets more fierce, tariffs are emerging as a pivotal factor shaping the strategies of automakers in the West, notably the EU and the US. Tariffs are intended to protect the local EV industry from cheaper imports, thereby giving manufacturers the space to grow. As both regions implement tariffs to bolster local production and reduce reliance on foreign imports, particularly from China, these measures are shaping the competitive landscape of the EV industry. From EU tariffs to US ones, how can these be implemented to lower local production costs?
EU Tariffs
With 19.5% of all EVs sold across the EU in 2023, 300,000 units, built in China, the EU has been introducing tariffs on imports with the objective of prioritizing and enhancing the cost-effectiveness of local EV production. Indeed, the EU’s primary focus is on developing a robust EV and battery ecosystem, the latter which is critical due to batteries being the most expensive component of EVs. Additionally, Chinese EV manufacturers have been increasingly assertive in penetrating the European market, driven by domestic price competition and years of technological advancement. As a result, following a provisional conclusion by the European Commission that the battery electric vehicle (BEV) value chain in China benefited from unfair subsidies, it was determined that this posed a potential threat of economic harm to EU BEV producers as well as users and consumers of BEVs within the EU.
Consequently, the EU will introduce new tariffs on EVs imported from China starting in July 2024, raising duties to as much as 48% in total, a move that will intensify trade tensions at the same time as increasing the cost of purchasing an EV. In the case of BYD, the duties on their EVs would be 17,4%, followed by Geely at 20% and SAIC at 38.1%. Other Chinese BEV producers that cooperated with the investigation but were not included in the sample will face a weighted average duty of 21%. Similarly, all other Chinese BEV producers that did not cooperate in the investigation will be subject to a residual duty of 38.1%.
US Tariffs
Over in the US, the country is finding ways to manage the ambitions of mainland Chinese companies to increase exports of EVs and EV parts. This prompted the announcement of new policies and a reassessment of import tariffs. As such, the US recently implemented tariff adjustments aimed at limiting imports from mainland China. The newly imposed tariffs will cover $18 billion worth of Chinese imports and cover 14 different Chinese product categories, specifically targeting key and strategic imports of EVs, lithium-ion batteries, semiconductors and essential minerals like graphite from mainland China. This will include hiking import duties on imported Chinese EVs from 25% to 100% on August 1st 2024, and battery parts and lithium batteries from 7.5% to 25%.
Moreover, and for the first time, the US will impose 25% import tariffs on Chinese critical minerals in 2026. This action is believed to create a more equitable environment for domestic producers, providing the American industry with the necessary timeframe to expand and develop in accordance with the US’s crucial national interests. Indeed, the current administration reckons that the new measures are essential to prevent Chinese mainland companies from inundating the US market with lower-cost EVs and batteries, posing a challenge for American companies to maintain competitiveness.
Solving Tariffs with Cheaper and More Efficient Local Production
With relying solely on tariffs being insufficient, OEMs must focus on finding ways for cheaper local EV production at the same time as building an ecosystem that will lower the price point. Indeed, while these tariffs are expected to encourage local manufacturing, the overarching challenge remains: reducing production costs to stay competitive within their local market and on a global scale.
Furthermore, EV makers must turn to investing in cutting-edge battery technologies and production methods that can compete with Chinese counterparts. Indeed, the focus should be on creating an environment conducive to research and development in battery technology, which prioritizes efficiency and cost reduction. This approach can develop a competitive edge that goes beyond the temporary shield provided by tariffs, an essential part of building a sustainable and competitive EV industry.
Similarly, local production needs to become more cost-effective. While tariffs might boost local EV production and help build a robust local battery ecosystem, reducing production costs is at the forefront of the industry. Indeed, the EU and the US should not rely solely on tariff protections to build this ecosystem but should also invest in new technologies that can compete with China without tariffs.
Reducing Production Costs with Addionics
As tariffs have a huge impact on everyone, OEMs need to prioritize reducing production costs. With Addionics’ 3D Current Collectors, battery cost reductions can be made by combining this chemistry agnostic technology with smarter battery structures. Indeed, Addionics’ drop-in solution requires fewer materials and can be applied to any new or existing battery chemistry, regardless of the components used. Additionally, the AI-driven structural optimization algorithm seamlessly integrates software with battery hardware, creating a comprehensive and smart system. This capability enables leading EV manufacturers to achieve considerable cost reductions while simultaneously increasing their profitability and becoming more competitive.
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