China dominates the global electric vehicle (EV) industry. Last year, China accounted for approximately 60 percent of global registrations of new electric vehicles, and China’s EV stock was over 4.5 times greater than that of the U.S. But while EVs promise to wean the world off harmful fossil fuels, China’s outbound investments along the EV value chain have fueled a political backlash in many Western countries anxious about Chinese dominance in their own markets. Ian Austen from The New York Times reported on the latest example this week, when Canada imposed 100 percent tariffs on Chinese EVs, along with 25 percent tariffs on Chinese steel and aluminum:
In a significant escalation of trade tensions between Western countries and China, Prime Minister Justin Trudeau said on Monday that Canada would impose 100 percent tariffs on Chinese electric vehicles, joining the United States and the European Union in protecting domestic car production.
The move aligns Canada’s automotive policy with that of the United States, the market for the vast majority of Canadian-made vehicles where President Biden in May announced 100 percent tariffs on Chinese electric cars. And it also appears to be a form of insurance for the tens of billions of dollars in subsidies that Canadian governments have committed for the development of electric vehicle and battery factories being built in the country by Honda, Stellantis, Volkswagen, General Motors, LG and others.
[…] Canada opened public consultations on the tariffs at the beginning of July. The 100 percent tariff on Chinese electric vehicles will go into effect on Oct. 1. [Source]
Tesla is at the center of this perceived threat. After it started shipping Shanghai-made EVs to Canada, auto imports from China to the port of Vancouver jumped 460 percent year-on-year. Mark Rainford, a China-based auto-industry commentator, told the BBC, “If [Tesla fails] at mitigating the tariff enough, they’ll likely look at switching their Canadian imports to either the U.S. or European factories since Canada is their 6th largest market this year and thus not insignificant.”
The U.S. also plays an important role in these developments. Canada “had to go with the U.S. position, when you think about the economic integration that we have with the U.S. More than 75% of our exports go to the U.S.,” a former Canadian ambassador to China, Guy Saint-Jacques, told the AP. John Paul Tasker from Canada’s CBC described the timing of the Canadian government’s decision, which coincided with a visit by U.S. National Security Advisor Jake Sullivan:
Trudeau and his cabinet heard from Jake Sullivan, Biden’s national security adviser, late Sunday during a surprise stopover before his trip to China.
Sullivan told reporters that the U.S. would like its partners to adopt a co-ordinated approach to Chinese EVs.
In a background briefing with reporters, a senior government official said Canada is not enacting these tariffs because of U.S. pressure.
The official said the government has been studying the issue for months — back to before the U.S. announcement of its tariffs in May – and has long been concerned about the prospect of Chinese automakers flooding North America with heavily subsidized cars that are made in a country with poor labour and environmental standards. [Source]
American policy experts have deliberated with growing agitation about how to respond to trade and investment issues arising from China’s strong EV sector. The U.S. government supercharged the global EV war in May by imposing 100 percent tariffs on Chinese EVs and 25 percent tariffs on Chinese EV batteries. This followed the 2022 Inflation Reduction Act (IRA), which in part aimed to boost domestic EV production and shift EV supply chains away from China. But as Rebecca Bellan reported for TechCrunch last month, various EV projects in the U.S. that were spurred by the IRA still include links to Chinese companies:
In September 2023, Daimler Truck and Paccar announced a joint venture with energy technology company Accelera and Chinese battery maker EVE Energy to build a battery cell production plant that would support the adoption of EVs for medium- and heavy-duty commercial transportation. The companies said in January 2024 that they selected a site in Mississippi.
[…] Ford is also building a lithium-iron-phosphate plant in Michigan. Chinese battery maker CATL is licensing its technology to Ford as a service provider on a contractual basis. That might change in the future, though, as Ford has now attracted the ire of House Republicans who are probing the automaker’s relationship with the Chinese battery company.
[…] Gotion Inc., which is headquartered in Silicon Valley and owned by Chinese company Gotion High-Tech, first announced its intent to build a battery factory in Michigan in October 2022. The factory, which secured $175 million in state funds in April 2023, aimed to build both cathode and anodes that could be used for both EVs and solar generators, according to a spokesperson from the company. However, Gotion has faced pushback from locals. The township’s board voted to reverse a previously approved plan to extend the city’s water supply to the location of the factory. In March, Gotion filed a lawsuit against the town, which is ongoing.
While the Michigan factory is clearly on hold, Gotion has another one in the works. In September 2023, Gotion also announced plans to set up a second battery manufacturing plant in Illinois. The company is on the receiving end of state incentives valued at $536 million and expects to receive tax benefits totaling $213 million over $30 years, as long as Gotion invests a minimum of $1.9 billion and the creation of thousands of well-paid jobs. [Source]
In Europe, Chinese EV investments have been going through a transition. MERICS released a report in June detailing how the bulk of Chinese investments in Europe last year were via greenfield EV projects, which were concentrated in Hungary. Since then, the European Commission announced provisional tariffs ranging from 17 to 36 percent on EVs imported from China. Tesla managed to secure a lower tariff rate of 9 percent, arguing that it received fewer Chinese subsidies compared to local manufacturers. The Chinese government retaliated against these tariffs last week by launching an anti-dumping investigation into European dairy imports.
In response to trade barriers and curtailed market access in Western countries, Chinese companies are turning to the Global South to expand their EV operations. In July, China’s BYD announced a one-billion-dollar investment in a production plant in Turkey that would have an annual capacity of 150,000 EVs. This month, China Ganfeng Lithium signed a $500 million joint venture agreement to build a lithium battery gigafactory in Turkey. The Turkish government anticipates more investments from Chinese EV makers. Similar trends are occurring in Morocco, whose proximity to Europe and free-trade agreements with the E.U. and the U.S. have helped to attract a number of Chinese EV and battery manufacturers: Chinese battery-maker BTR New Material Group is building a $300-million cathode factory; Chinese-German battery-maker Gotion is building a $1.3-billion gigafactory; and Chinese battery-parts maker CNGR Advanced Material is building a $2 billion industrial base.
Chinese EV investments have also expanded to other regions. SAIC Motor-CP, a Thai subsidiary of the Chinese company SAIC, announced plans this week to be the first Thai company to export EVs to Europe; the company’s executive vice-president acknowledged the role of high tariffs in spurring Chinese automakers to establish overseas manufacturing bases. MG Motor, another SAIC subsidiary, announced plans this month to build a manufacturing plant and R&D center in Mexico. BYD announced it will set up an EV assembly plant in Pakistan. On Tuesday, Salina Li from the South China Morning Post described how Latin America, the Middle East, and Southeast Asia are becoming key destinations for exports and production facilities for Chinese EV makers:
“Fierce domestic competition is eroding Chinese EV makers’ profitability despite strong demand,” said Gerwin Ho, a Moody’s Ratings vice-president and senior credit officer. “This challenge, along with their desire to build scale, is driving them to expand to overseas markets.”
[…] Chinese EV makers now enjoy the lion’s share of the market in Southeast Asia. Their slice of the pie grew from 47 per cent in 2021 to 74 per cent last year, according to a report published by Deloitte China in May.
Exports of Chinese vehicles to Brazil from January to May, including EVs and gas-powered cars and trucks, jumped more than sixfold to 159,612 units, while deliveries to the UAE climbed 92 per cent to 114,530 vehicles, according to Chinese customs. [Source]
