Chinese car makers optimistic UK not planning to follow EU on tariffs

Chinese car makers importing to the UK are seeing signs that the country is not planning to follow the European Union's increase in tariffs on China-built electric vehicles. “What I heard is that the UK will not follow the European Union,” Victor Zhang, managing director of Chery in the UK, told Autocar at last weekend’s Goodwood Festival of Speed. "I think that would be a wise decision." Chery is partnered with JLR in China and has opened 60 dealerships in the UK in advance of sales of two brands starting later this year. The mood among Chinese EV makers targeting the UK will have been improved by a report yesterday that UK trade secretary Jonathan Reynolds has signalled that the UK will stick to the current 10% tariff for the moment and not adopt the EU’s temporary increase up to a maximum 47% of the wholesale cost. “I am not ruling anything out but, if you have a very much export-orientated industry, the decision you take [has to be] the right one for that sector,” the Financial Times reported Reynolds as saying. The UK exported eight of 10 cars made in the country last year, meaning that the local car industry would be less disrupted by any potential upheaval in its home market. However, with many high-value models heading to China – for example, Range Rovers and Range Rover Sports – the UK is vulnerable to any potential retaliatory tariffs if it does follow the EU. Chinese car makers argue that access to lower-priced EVs is essential to shift the market in the direction indicated by legislators, which culminates in a de facto ban on the sale of new cars with combustion engines starting in 2035. “I think the UK can very rapidly become the next country with very strong EV adoption,” Stella Li, head of BYD in Europe, told Autocar at Goodwood. “Europe increasing tariffs, I think, is the wrong direction.” For pure-EV sales, BYD outsold Honda, Ford, Mini, Renault, Jaguar and Citroën in the UK in the first six months of this year, at almost 3000 units. The brand’s best-selling model was the Atto 3 compact SUV, which starts at £37,695. Retail customers (as opposed to fleet) are proving hardest to reach for EV manufacturers as the cost of living crisis continues. Even value-angled Chinese brands are struggling to move the needle. MG remains the biggest Chinese-owned seller of EVs in the UK, with sales of 10,376 in the first six months. Its best-selling MG 4 is one of the cheapest EVs, starting at £26,995. However, sales are falling. “We've actually been disproportionately affected by the collapse of retail demand for electric cars,” Guy Pigounakis, commercial director at MG Motor UK, told Autocar. "The MG 4 is still the best-selling electric vehicle in the UK to retail customers, but the volume is dramatically down.” MG – owned by China’s SAIC – has been hit hardest by the tariffs in the EU at the maximum 47%, after the European Commission judged that subsidies were bringing its costs artificially low. As the company waits to discover its tariff fate here, the UK arm of MG is dealing with the additional tariffs in Northern Ireland, where they are already being applied to EVs because of the post-Brexit protocol arrangement designed to avoid a hard border with the Republic of Ireland. “We only realised two days after the tariffs came in,” Pigounakis said. “But we've just told the dealers just to carry on selling cars like normal. We'll sort out whatever’s going on the basis that we can claim the money back from HMRC.” The initial assumption from the car industry when the provisional tariffs were first announced in June was that the UK would have to follow, or face intense pressure from Chinese car makers ramping up right-hand-drive production to make up for the EU shortfall. “It’s important that the UK doesn’t become disconnected from Europe [on tariffs],” Toyota Motor Europe chief corporate officer Matt Harrison told Autocar. To trigger a UK investigation into Chinese automotive subsidies, car makers would have to raise a complaint to the Trade Remedies Authority. The secretary of state can also start the process. As of 17 July, no complaint had been raised, according to a source with knowledge of the application process. Any investigation into the effect of subsidies on Chinese car makers could be quite quick if the UK was willing to take at face value the evidence published by the European Commission. The comprehensive document details the ways in which key vehicle makers are helped by the Chinese state. For example, the Commission noted a key supplier of LFP battery raw materials, the partly state-owned Hunan Yuneng New Energy, had an agreement to supply BYD at a lower price than other battery makers. The Commission concluded the company was not a “rational economic operator” but rather was state-directed. Discussions are ongoing within the EU on whether to make the tariffs on EVs (and extended-range EVs) permanent in November. The Chinese, meanwhile, argue that no new importing country has ever come to dominate EU or UK markets, despite fears to the contrary. “I think it's just another option for the customer,” said Chery’s Zhang. He pointed out that Hyundai-Kia has settled at a market share of around 10% together in the UK. “It doesn't mean the Chinese will come to grab and to conquer, to steal the market share."