Chinese EVs Remain Competitive Despite Tariffs

The Biden administration in the US has decided to increase the tariff on China’s imported pure electric vehicles (EV) to 100% starting from September 27. Despite this, Chinese EVs are still more competitive than American companies.

The Office of the United States Trade Representative (USTR) expressed strong feelings in its final decision to raise tariffs announced on September 13, citing concerns that Chinese government’s industrial policies could threaten US government investment in the electric vehicle industry.

There have been calls for pure electric buses, some car batteries, and important minerals needed for batteries to be exempt from the tax rate increase. However, the Office of the US Trade Representative rejected the proposal, citing the need to promote supply chain diversification and reduce dependence on China in industries where China is competing for dominance.

The United States is increasing its efforts to foster the production bases of electric vehicles and batteries through tax incentives under the Inflation Reduction Act (IRA). Despite this, China, which has spent 10 years nurturing industries with national efforts, is still out of reach.

According to data from the research company MarkLines, in July 2024, the sales ratio of electric vehicles in the United States is only more than 10%, which is much lower than the average of China and the world (about 20%) which reaching around 50%.

The background is not only insufficient charging infrastructure, but also a lack of affordable electric vehicles. Chinese companies, which own the entire EV supply chain including batteries, are launching an offensive with low-priced EVs under $25,000.

US automakers, not even Tesla, have been able to develop an EV under $30,000. There is still no EV at a price comparable to the price of gasoline vehicles.

Joe McCabe, CEO of Auto Forecast Solutions, an American research firm, said, “The lowest price in the WORLD is US$12,000. Even if it’s subject to 100% tariffs, it’s less than US$25,000. In the US, it’s still the cheapest on the market, Chinese companies don’t care about profitability, etc.”

The United States is wary of roundabout imports through Mexico and elsewhere. Trade Secretary Raimondo said, “For example, BYD, even if its base is in Mexico, it is still a Chinese company.”

As for batteries, which account for 30% of the cost of EVs, it is difficult to get rid of dependence on China, which also worries the United States.

The amount of batteries imported by the United States from China reached US$6.2 billion between January and June. In 2023 (USD 13 billion), it will increase by 40% compared to 2022, and it has increased to 6 times in the last 3 years.

General Motors (GM) has delayed the start of production at its North American battery plant it promoted jointly with South Korea’s Samsung SDI by a year. Panasonic Holdings (HD) has lowered its production target for EV batteries, mainly in North America, by 30% from the original plan.

An executive from the North American subsidiary of a Japanese car company said, “Currently, the United States does not have a supply chain to promote the mining and processing of battery materials.”

It will prevent an influx of low-priced Chinese products by raising tariffs while nurturing industries in the United States. It is not clear whether this step will work.

Nihon Keizai Shimbun (Chinese version: Nikkei Chinese website) Yayoshima Ayahei Washington, Kawakami Azusa New York