How Chinese cars are beating European tariffs

Subscribe to enjoy similar stories. WHEN THE European Union increased tariffs on Chinese battery electric vehicles (EVs) in 2024, the logic was straightforward: raise prices and imports will fall. A study published by the Kiel Institute, a think-tank, estimated that higher levies would cause Chinese car exports to plunge by 25%.

After more than a year, that forecast is wrong. According to China’s customs agency, car exports to Europe rose to nearly 1.2m in the 12 months to November, up by 26% from a year earlier (see chart 1). The data suggest that Europe’s failure to stem the rise of Chinese-made vehicles has less to do with weak tariffs than Chinese carmakers’ talent for steering around them.

Europe’s EV tariffs were designed to address what the European Commission calls the “unfair subsidisation" of Chinese producers by the state and restore a “level playing field". But instead of imposing a uniform duty on all Chinese cars, the EU opted for a tailored approach. Extra tariffs were applied only to purely battery-powered vehicles, based on each carmaker’s estimated level of government support.

On top of the bloc’s existing 10% import duty, BYD (China’s biggest producer of EVs) faced an additional 17%, Geely-owned brands 18.8% and SAIC 35.3%. Other Chinese carmakers were subject to tariffs of 20.7%. Hybrids were spared.

Rather than retreat, Chinese carmakers changed lanes, pivoting from EVs to hybrids, which combine electric motors with petrol engines. This shift is evident in the data. Whereas monthly Chinese EV sales to Europe have grown by 12% in the past year, exports of hybrids have surged by 155%, albeit from a low base (see chart 2).