EU's Hefty 36.3% Tax: Impact on Lithium Battery Demand?

According to reports, on August 20th local time, the European Commission disclosed to the relevant parties a draft decision on the final anti-subsidy duties to be imposed on the import of pure electric vehicles from China. Among them, BYD is subject to a 17% duty, Geely to 19.3%, SAIC Motor Corporation to 36.3%, other cooperating companies to 21.3%, and all other non-cooperating companies to 36.3%. In contrast, Tesla, which is also produced and exported from China, is taxed at only 9%.

Facing such high tax rates and such obvious "double standards," what would be the impact if Chinese new energy vehicles were to lose the European market? Would the lithium battery industry experience a shock? Would the upstream lithium carbonate market face tightening demand?

Why did the EU still take a hard line?

With the current changes in the international situation, it is highly likely that the EU will "take a hard line" against Chinese new energy vehicles.

"They have already prepared a list, not only to fully contain but also to focus on striking hard," as warned by experts at the True Lithium Salon Chengdu station meeting in June.

Since June of this year, China has conducted no less than ten rounds of consultations on the EU's anti-subsidy investigation and tariff increase plan. SAIC Motor Corporation even filed a defense with the European Commission. Our retaliatory tax measures against EU pork exports are also imminent.

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Even for this reason, serious disagreements have arisen among EU member states. In a survey vote on tariffs for Chinese electric vehicles on July 15th, out of 27 EU members, 4 opposed, and 11 countries including Germany and Sweden abstained, with only France and Italy firmly supporting.

However, all of this still did not prevent the European Commission from continuing to make the "wrong decision." On August 20th local time, the European Commission disclosed to the relevant parties a draft decision on the final anti-subsidy duties to be imposed on the import of pure electric vehicles from China, with a final vote planned for November.

Among them, BYD is subject to a 17% duty, Geely to 19.3%, SAIC Motor Corporation to 36.3%, other cooperating companies to 21.3%, and all other non-cooperating companies to 36.3%. The numbers are only slightly less than 2 percentage points lower than the initial plan. In contrast, Tesla, which is also produced and exported from China, is taxed at only 9%.In response to this, industry insiders have stated that it is clear that "face" is not being given, and it is evident that a "double standard" is being applied blatantly against Chinese brands. Despite all being produced in China, receiving various subsidies for new energy, and enjoying more favorable conditions in terms of land, taxation, and financing, Tesla's newly imposed tariffs are only 9%, nearly ten percentage points lower than Chinese brands, and 27 percentage points lower than state-owned SAIC. This is sufficient to illustrate the issue.

What "anti-subsidy" investigations and fair trade are, in reality, just smokescreens. It is clear that this is a containment strategy aimed at us, a contest for the commanding heights of future industries.

Let go of illusions, what is the impact on lithium batteries?

They are already sharpening their knives, and we must abandon our illusions. The EU's imposition of additional tariffs will have a much greater impact than the United States' previous imposition of 100% tariffs on Chinese electric vehicles.

According to industry insiders, if the EU's additional tariffs are approved, it will overall increase the cost of Chinese electric vehicles by about 20%. This will have a significant impact on the export of Chinese electric vehicles to the EU.

On one hand, the brand value of Chinese automotive products still needs to be improved. People buy Chinese new energy vehicles merely as a means of transportation, primarily for their affordability. This means that our companies cannot pass on the entire increased cost of nearly 20% to consumers by raising prices. If Chinese cars significantly increase in price in Europe, market sales will inevitably be affected, and it will also create market space for European and Japanese automotive companies.

On the other hand, unlike exports to the United States, the proportion of Chinese electric vehicles exported to the EU is still quite high. According to statistics, in 2023, China exported 640,000 pure electric vehicles to Europe, accounting for 41.27%; the export value was 132.5 billion yuan, accounting for 55.13%.

Cui Dongshu, Secretary-General of the China Passenger Car Association, stated that it is undeniable that the EU's anti-subsidy investigation has had a significant impact on exports. According to data from the General Administration of Customs of China, in June, the number of electric vehicles exported from China to the EU was 27,180, a decrease of about 25% from 36,217 in May, and a year-on-year decrease of about 31%.

As the EU's policy of imposing additional tariffs takes effect, the number of Chinese electric vehicles exported to the EU is likely to decrease further. If calculated at a reduction rate of 30% for the whole year, it would mean a reduction of nearly 200,000 units in sales, which is approximately a loss of nearly 40 billion yuan. The corresponding decrease in demand for lithium batteries will also reach nearly 9.4 GWh.

Although this is less than 2% of the impact on China's annual sales of nearly 9 million new energy vehicles and nearly 778 GWh of power lithium battery production, it means that the rapid growth trend of our new energy vehicles and lithium battery exports will be delayed. The "one in, one out" difference will force adjustments to the expectations of related industry chains.Be Prepared on Both Fronts! Chinese Enterprises Remain Competitive

To address more complex and challenging situations, Chinese enterprises have been actively preparing.

On one hand, Chinese companies are mitigating the impact of increased tariffs through cost optimization and technological advancements. Wang Xiaoqiu, Chairman of SAIC Group, stated that they would not abandon the EU market. Despite facing a high tariff rate of 47.6%, which might have a greater impact than other Chinese automotive companies, SAIC remains competitive. Relying on its current scale and technological level, SAIC's sales momentum in Europe is still expected to be unstoppable.

A responsible person from BYD also told True Lithium New Media that, according to the current EU tariff plan, although it may slow down the European market, Chinese enterprises will still be competitive. The production cost of electric cores in Europe and the United States is high, and it cannot catch up in the short term, so the growth rate is still greater than pessimistic expectations.

On the other hand, by increasing overseas production capacity, Chinese companies are also bypassing EU tariff barriers.

In the automotive sector, Chinese car manufacturers such as SAIC, Great Wall, Changan, and BYD have chosen to build factories in Southeast Asia. BYD has even expanded its production base to countries like Brazil, Hungary, and Uzbekistan.

In the lithium battery sector, according to incomplete statistics, the production capacity of Chinese lithium battery companies building factories overseas in just the past two years has reached nearly 270GWh, close to one-third of domestic production.

For example, recently, CATL announced that its 100GWh lithium battery factory in Hungary has passed the Hungarian government's environmental assessment permit and is expected to officially start production in 2025. On July 5, EVE Energy also announced plans to invest in the construction of energy storage batteries and consumer battery manufacturing projects in Malaysia, with a total investment of nearly 3.3 billion yuan. Guoxuan High-Tech's lithium iron phosphate battery factory in Vietnam is also expected to start large-scale production in the third quarter of 2024. The latest news is that Ganfeng Lithium has also announced the construction of a 5GWh lithium battery project in Turkey.

In terms of related industrial chains such as positive materials, diaphragms, and electrolytes, Chinese companies are also accelerating their overseas expansion. Among them, according to incomplete statistics, the overseas production capacity of battery positive materials and precursors has already approached 1 million tons in just the past two years.For instance, Xiamen Tungsten's 80,000 tons of cathode materials and 80,000 tons of precursors are "settling" in France. Ronbay Technology's 80,000 tons of high-nickel cathode material production line in South Korea is expected to complete the main construction by the end of 2024, with trial production scheduled for the first half of 2025. Hunan Yuneng announced on April 20th its plan to invest in the construction of a 50,000-ton lithium battery cathode material project in Spain. Huayou Cobalt's 25,000-ton ternary cathode project in Spain is also set to commence production in 2025.

Focusing on both cost reduction and efficiency enhancement, as well as overseas expansion, stimulated by the tariff policies of Europe and the United States, the year 2024 has become a pivotal turning point for Chinese new energy vehicles and the lithium battery industry to go global.