EV Trade War Could Spread to Luxury Cars

Europe’s politicians have no easy options for dealing with Chinese electric vehicles.

Slap a 100% tariff on them, as President Biden did last month , and China can easily retaliate against the more than 300,000 luxury cars it gets annually from the European Union. Let Chinese EVs into the EU with the current 10% tariff, though, and Chinese companies have an open road to take market share, given impressive technology and a roughly 30% cost advantage.

This week, the European Commission is expected to announce the results of a nine-month investigation into Chinese EV subsidies . Its most likely course of action is a cautious middle ground—a 25% to 30% tariff that would make European EVs broadly competitive with lower-cost Chinese imports. This could still trigger retaliation, but the EU’s executive body has to do something to protect an economically and strategically important industry.

This political reality only looms larger after this past weekend’s elections for the European Parliament, which rewarded right-wing populist parties in France and Germany. In the coming months a new European Commission will review the policy response to the EV investigation. Arguments for going easy on cheap Chinese EVs , because they help Europe’s climate goals, will presumably take a back seat to economic protectionism.

Just how much market share Chinese cars might take in Europe, at least in the short term, is debatable. After years of modest gains, they accounted for roughly one in 10 new EVs sold in Western Europe in the third quarter of 2023, according to Schmidt Automotive Research. But their share fell back in the final three months of the year, when France excluded China-made models from its subsidy program. High discounts on Chinese brands also point to stalling progress.

Many European consumers might not be ready for proudly Chinese brands such as BYD. The bestselling “Chinese” brand in Europe by far is MG, which is historically British but now belongs to China’s SAIC. Even it wasn’t one of April’s 10 bestselling EV models in the EU, according to data provider Jato Dynamics.

Many more Europeans would no doubt be converted to Chinese brands by the rock-bottom prices advertised domestically in China, which is in the throes of a vicious price war. But BYD launched its vehicles last year at surprisingly high prices, perhaps mindful of the EU’s investigation as well as the potential to juice its margins to compensate for a tough home market.

Still, the long-term threat posed by Chinese-made EVs in Europe is clear, and the EU won’t take any chances. One consequence of higher tariffs will be more local production. BYD is already building a factory in Hungary, while Volvo Cars will start producing its new EX30 in Belgium next year, rather than shipping it to Europe from China as it currently does. Tesla , which makes its Model 3 for Europe in its factory near Shanghai, will probably need to follow suit.

Other consequences will depend on China’s response. The China Chamber of Commerce to the EU said last month that Beijing was considering a 25% tax on imported cars with large engines. China’s current tariff on vehicle imports from the EU is 15%. This move would hit Porsche in particular as it makes about a quarter of its revenue in China and produces all its cars in Germany.

The irony is that investors previously assumed luxury cars were relatively insulated from the threat of Chinese EV imports. Last year, the market was instead worried about the competitive challenge to mass-market manufacturers such as France’s Renault . As politicians in Paris and Brussels responded, concerns shifted, contributing to a gaping divide in stock-market performance: Porsche’s stock is down 37% over one year while Renault’s is up 55%.

In the end, some kind of truce that keeps trade flowing is likely. The EU is more dependent on exports to China than the U.S., ruling out the kind of isolationism Washington is moving toward. That might be a reason to worry more about Renault again, though the French company appears to be making progress in cutting EV costs.

This points to the only sustainable European response to Chinese EVs: matching their technology and cost structure, at least as far as local differences allow. Higher tariffs can only buy a little time.

During the Covid pandemic in 2021, Silicon Valley venture capitalist John O’Farrell organised a call with several tech CEOs to urge them to back Unicef’s efforts to distribute vaccines globally as he and his wife, Gloria Principe, were doing.

Stewart Butterfield , co-founder and—at the time—the CEO of Slack, and his wife, Jen Rubio , co-founder and CEO of Away, “gave US$25 million on the spot,” and challenged other tech CEOs to give, too, says Kristen Jones, Unicef’s fundraising manager, global philanthropy.

O’Farrell is on the national board of the organisation and a member of the Unicef International Council, a network of 150 wealthy individuals from 22 countries.

“We were trying to mobilise resources really quickly,” Jones says. In this instance, an International Council member showed how the “influence and trust” of individuals and their network can be extended to Unicef and its mission.

Unicef National Board Chairman Bernard Taylor, an arbitrator and mediator at Judicial Arbitration and Mediation ADR Services and a retired partner with Alston & Bird, is also a member of the organisation’s International Council.
Courtesy of Unicef

Unicef, officially the United Nations Children’s Fund, is a U.N. agency focused on humanitarian and developmental aid to children. It relies on funding from governments and intergovernmental agencies. But it also depends on the private sector, from US$1 gifts provided by individuals across the world to giving by corporations, foundations, and wealthy donors.

Total giving to Unicef from the private sector totalled US$2.07 billion last year, representing 23% of total revenue, according to its annual report. Of that total, US$829 million was unrestricted—money that is particularly valuable because it’s flexible.

“That funding is critical for us to be able to cover underfunded operations, emergencies or situations of armed conflict that are not in the headlines anymore,” says Carla Haddad Mardini, director of Unicef’s division of private fundraising and partnerships.

The International Council was formed in 2017 not only to boost private-sector donations, but to create a powerful group of individuals who could bring their knowledge, expertise, vision, and networks to the organisation, Haddad Mardini says.

“We don’t see them as donors, we see them as partners,” she says.

That’s because the council’s engagement with Unicef goes behind giving. “They support by opening their networks to us, thinking with us about the global problems that make children more vulnerable,” Haddad Mardini says. “It’s invaluable in terms of the advocacy that they do and the influence that they exert.”

The council, of course, also provides needed funding. Since it was formed, members—who give US$1 million when they join—have donated more than US$552 million.

This past year, the council brought on 15 new members, half from countries in the Southern Hemisphere, including India, Vietnam, Indonesia, and Mexico. The incoming chair is Muhammed Aziz Khan, founder and chairman of the Summit Group, a Bangladesh industrial conglomerate, whose foundation is focused on the education of vulnerable children in the country.

“We want this group to be as diverse as possible,” Haddad Mardini says. “They’re not there for their own visibility, they are there to really meaningfully and purposefully make a difference.”

Bernard Taylor, an arbitrator and mediator at Judicial Arbitration and Mediation ADR Services and a retired partner with Alston & Bird, an Atlanta-based international law firm, has been an active supporter of Unicef for years, joining its Southeast Regional Board in the U.S. in 2007. In 2018, he joined the council and this past summer, became chair of the organisation’s National Board.

One of Taylor’s earliest experiences with Unicef was a trip to Madagascar not long after the island in the southwest Indian Ocean off the coast of Africa had been hit by successive cyclones.

“It was really eye-opening from the standpoint of seeing the despair that so many people were living through and that the children were living through,” Taylor says. After returning home and taking his children on a trip to the local mall to buy supplies for a school project, he was overwhelmed by the abundance that surrounded them.

“Just a short plane ride away, people were living in despair and death—we had to do something about that, and what I saw was that Unicef was doing something about it,” he says. “That’s how I got involved and committed.”

Often, the council responds to emergencies such as the urgent need for global vaccine distribution during the pandemic. In 2022, the council raised US$3.2 million to support Unicef’s work in Afghanistan, and another US$5.5 million in response to the war in Ukraine.

But as Haddad Mardini says, the council also goes beyond check-writing.

“We are all focused on pulling together our resources, our expertise,

our networks,” Taylor says. “As a private philanthropy, we’re able to be nimble, to be fast and flexible in ways that can address the issues that Unicef is struggling with. As a council member, I’m able to utilise my influence with peers and business leaders and even governmental entities.”

Recently, he spoke with one of Georgia’s U.S. senators to inform him about Unicef’s activities and to get his support. “Maybe you would call us extenders of influence—we increase, substantially, the influence and the ability of Unicef to do its work.”

The experience of Taylor, O’Farrell and others as private sector executives can also be influential to the thinking of Unicef’s executives, Jones says.

“They’re bringing their private sector experience and what they’re seeing in their partnerships,” she says. “It’s a space where they feel comfortable being very open and candid. It’s a nice dialogue with leadership.”

EV Trade War Could Spread to Luxury Cars

Investors used to worry about an invasion of Chinese electric vehicles into Europe. Tit-for-tat tariffs would instead hit Porsches heading to China.