Volvo

china Responds to EU Tariffs with “Luxury Tax,” Impacting European Automakers

Following the European Union’s imposition of increased customs duties on Chinese electric vehicles (EVs), China has retaliated with a new “luxury tax” targeting high-end European automobiles. This tax, a 10% levy on vehicles priced over 900,000 yuan (approximately 2.7 million Czech crowns), applies regardless of where the vehicle is manufactured.

The introduction of this tax, which came into effect on July 20th, appears to specifically target prosperous, prestigious European brands in the Chinese market. Automakers reportedly received only three days’ notice of the new measure, leading to an immediate impact on sales.

Data indicates important declines in july sales for key German brands. Mercedes-Benz experienced a 22% drop, BMW saw a 35% decrease, and Porsche’s sales fell by 17%. China has been a crucial market for luxury European brands, but exports have been declining for three consecutive years, falling 16% year-on-year to 644,000 units last year. This makes the timing of the “luxury tax” notably damaging for these automakers.

Adapting to EU Tariffs:

The EU tariffs on Chinese EVs have prompted varied responses from Chinese automakers. MG, owned by SAIC, is absorbing the increased costs to maintain its European market presence, exemplified by the pricing of its new MGS5 electric SUV, which is competitively priced against the Skoda electric car in the Czech market.

Other Chinese manufacturers, like BYD, are circumventing the tariffs by shifting production to countries with more favorable trade agreements, such as Thailand.Several automakers with European operations but Chinese production are also relocating production to the continent. Volvo has begun producing its EX30 model in Ghent, Belgium, avoiding the tariffs, while Dacia plans to base production of the next-generation Spring model on a platform shared with the Renault Twingo, moving production away from China.

The situation is more complex for Smart, which now exclusively produces electric vehicles. Following a restructuring involving Mercedes-Benz and Geely, Smart’s presence in the Czech market has diminished, with no new vehicles imported this year. Any future Smart imports would be subject to the EU’s 28.8% tariff.