With the European Union slapping heavily restricted tariffs on EVs pouring in from China, Chinese automakers have found a solution: they will make and export hybrids instead, since hybrids of all types are strangely exempt from the tariff system.
Reuters reports that automakers in China have now shifted gears and are planning to export hybrid cars instead of EVs to Europe, all while planning more hybrid models in the coming years.
The European Union's recent EV tariffs of up to 45.3% on Chinese EVs are designed to protect its struggling auto industry from Chinese competition, with Chinese automakers flooding the bloc with cheap imports. But the caveat is that hybrids are not included in the increased costs, which gives brands like BYD an opportunity to continue to grow in the region.
For EVs, duties vary by automaker, 17% for BYD, 18.8% for Geely, and 35.3% for state-owned SAIC, in addition to the EU's 10% car import tax. Other EV manufacturers in China, including BMW and Volkswagen, are subject to a 20.7% duty, while Tesla is subject to a 7.8% duty. However, exporting hybrids sidesteps this whole problem.
“The increase is being driven by Chinese OEMs switching to plug-in hybrid vehicles as a way to avoid the EU's new tax on battery-powered vehicles from China,” Murtuza Ali, an analyst at Counterpoint Research, told Reuters. He said China's hybrid exports to the region will likely grow by 20% this year alone, and grow even more next year.
The European Commission says the tariffs are needed to tackle what it says are unfair subsidies – massive government aid in the form of subsidies, financing, and cheap access to land and raw materials that allow Chinese automakers to undercut rivals in the EU on price, both eating up large chunks of market share and putting European jobs at risk. Not to mention that China's production capacity of 3 million EVs per year is twice the size of the EU market. With the US and Canada applying 100% tariffs on EVs from China, Europe was the most obvious choice for Chinese expansion.
In any case, hybrids of all flavors seem to be becoming as popular in Europe as the US, with hybrid shipments in Europe more than tripling to 65,800 units from July to October compared to the same period last year, according to data from -China Passenger Car. Organization quoted by Reuters. In the third quarter, hybrids (including PHEVs) made up 18% of China's total vehicle sales in Europe, while EV shipments fell 58% from 62% in the same period. But now this trend is gaining momentum, and the fact is that hybrids still run on fossil fuels.
Another big threat from this trend is that the big Chinese automakers may develop the European plug-in hybrid markets, dominated by European and Japanese companies, with cheaper models with better fuel economy.
Meanwhile, BYD's first plug-in hybrid model in Europe, the Seal U DM-I, is priced from €35,900 ($37,700) – that's 700 points lower than the best-selling PHEV model in -VW, Tiguan, and Toyota's 10 percent cheaper IC-HR PHEV. BYD is also considering producing both EVs and hybrids at its new plant in Hungary.
Of course, all of this means that Europe could consider writing off hybrids and the tax system, so it's possible that Chinese companies will tread lightly. As for BYD, EuroNews cites that five of its six models will still be profitable in Europe despite the 30% tax, according to Rhodium Group figures. On the other hand, SAIC, whose EV in the EU accounts for 35.3%, plans to export vehicles with different powertrain systems to Europe, while Geely, which is the second largest company in China by sales, launched a new PHEV in Europe last month.
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