The EU has reduced tariffs on Teslas made in China

The European Union has made a significant move that could bolster Tesla’s position in the European market by lowering tariffs on its vehicles manufactured in China.

This decision, which contrasts with the EU’s recent stance on other Chinese-made electric vehicles (EVs), highlights Tesla’s unique position among global automakers.

In recent months, the EU has imposed higher tariffs on all electric vehicles imported from China, citing concerns over “unfair” subsidies that allegedly give Chinese manufacturers an advantage over their European competitors.

Tesla tariffs have been slashed by more than 50 per cent

Initially, Tesla’s China-made vehicles were subject to a 20.8 per cent additional tariff, a rate that many saw as a significant obstacle for the company. However, after further review, the European Commission has now reduced this rate to 9 per cent.

This new tariff is in addition to the standard 10 per cent duty applied to all EV imports into the EU. Despite this, Tesla’s adjusted rate remains significantly lower than the additional tariffs of 17 per cent to 36.3 per cent, now imposed on other Chinese automakers.

The European Commission explained that Tesla’s reduced tariff reflects the specific level of subsidies the company receives in China. The Commission verified this information during a recent visit to China, conducting similar checks on other Chinese automakers.

While the team at Tesla has not publicly commented on this adjustment, the decision could have far-reaching implications for Tesla’s sales strategy in Europe.

Industry experts have expressed surprise at the relatively low tariff rate for Tesla. Gregor Sebastian, a senior analyst at the Rhodium Group, noted the subsidies Tesla benefits from in China, such as local government loans and discounted batteries from the Chinese manufacturer CATL. Despite these advantages, Gregor Sebastian suggested that the Commission’s methodology in determining Tesla’s tariff is not entirely clear.

Tesla and its competitors

Though this tariff reduction is still a challenge for Tesla, it provides the company with a competitive edge over rivals like SAIC, which faces a 36.3 per cent tariff. This higher rate is reserved for companies that did not fully cooperate with the EU’s investigation. Other Chinese automakers, such as Geely and BYD, also face significant tariffs of 19.3 per cent and 17 per cent.

The initial round of tariffs introduced in July led Tesla to increase the price of its popular Model 3 in Europe by about 4 per cent, or €1,500, to €42,490. Even with this price hike, the Model 3 remains more affordable than BYD’s Seal, according to George Whitcombe, an automotive research analyst at Rho Motion. He suggests that the recent tariff reduction will help Tesla maintain its competitive pricing in the European market.

Meanwhile, BYD has yet to raise its prices in Europe despite the steep additional tariffs, demonstrating its ability to absorb these costs due to lower production expenses. The company may also explore options like producing vehicles in Turkey, where exports to the EU are not subject to these tariffs.

Despite these challenges, Chinese EV manufacturers are unlikely to retreat from the European market. Last year, Europe accounted for more than a third of their exports, a figure larger than their next five largest markets combined. As George Whitcombe points out, Chinese automakers still enjoy significant profit margins on their European sales, making the region an essential market for their continued growth.