Last month, the European Commission announced additional tariffs of up to 38.1% on electric vehicles produced in China. If China takes countermeasures in response, it could spell trouble for European automakers.
European automotive industry executives are wary of these tariffs, fearing that China's retaliatory measures could affect the competitiveness of European cars in China. This is especially concerning given the current Chinese EV market, where they already face fierce competition from an increasing number of local competitors.
Among them, German automakers are the most vulnerable to potential Chinese countermeasures. Trade data shows that almost one-third of German car manufacturers' sales in 2023 came from China.
Additionally, it is reported that China's counter tariffs might apply to cars with engine displacements of 2.5 liters or more. According to Stifel Research, such cars account for about 1% of Volkswagen's total sales, 2% for BMW, 4% for Mercedes, and as high as 17% for Porsche.
However, according to the German Association of the Automotive Industry (VDA), in 2023, less than 5% of the 4.8 million cars delivered by Volkswagen, Porsche, BMW, and Mercedes-Benz to Chinese customers were exported from Europe.
While most German cars sold in China are produced locally, many high-end models are still imported from Germany. This includes luxury brands under the Volkswagen Group, such as Porsche, which has no manufacturing plant in China. All of its cars sold in China are imported, accounting for 25% of its global sales.
Given that cars exported from Germany to China are often high-end models with substantial profit margins, Stifel estimates a negative impact of 4% to 10% on German automakers' EBIT (earnings before interest and taxes).
Porsche
Porsche would be most affected by Chinese counter tariffs since 25% of its global sales come from China, but its cars are almost entirely produced in Germany. However, analysts at HSBC noted in a report this month that Porsche's luxury brand positioning allows it to raise prices more significantly in response to counter tariffs compared to automakers in the affordable market.
Last year, Porsche's deliveries in China fell by 15% to 79,283 units, and sales in the first quarter of 2024 further dropped by 24%, partly due to weak demand in the Chinese market. Currently, Porsche is building an R&D base in Shanghai and unveiled a Taycan model tailored for the Chinese market at the Beijing Auto Show.
Volkswagen
Volkswagen would be the least affected by Chinese countermeasures. According to its annual report, only 2.5% of the cars it sells in China are produced in Germany. In 2023, the Volkswagen Group (including Porsche and its joint ventures in China) sold over 3.2 million cars in China, of which 3.06 million were produced locally. Among Volkswagen's high-end brand Audi cars sold in China, the proportion of imported cars is slightly higher, just over 8%.
However, considering the company's goal is to maintain or even increase its 14.5% to 15% market share despite intense competition from local Chinese automakers, any Chinese countermeasures would result in significant losses for Volkswagen.
Mercedes-Benz
China is Mercedes-Benz's largest market for new car sales, accounting for about 36% of its global sales. In 2023, it sold just over 737,000 units in China, with over 80% produced locally and the remainder imported.
According to CMB International, Mercedes-Benz's GLE SUV, S-Class sedan, and Porsche Cayenne are the most popular imported cars in China. Mercedes-Benz exports high-end models like the S-Class, GLC, G-Class, and Maybach from Europe and the U.S. to China, while preferring to produce smaller cars like the A-Class, E-Class, and C-Class in China.
BMW
BMW's car sales in the Chinese market account for nearly one-third of its global sales, slightly over 826,000 units, with about 13% being imported models. BMW's financial report shows that the models it sells in China that are imported from Germany include the i4, 7 Series, and 5 Series. BMW's highly anticipated new model Neue Klasse will begin local production in China in 2026.
BMW's cars currently produced in China are manufactured through its joint ventures with Chinese companies like Brilliance Auto, in which BMW holds a 75% stake. The company has also established a second joint venture with Great Wall Motors. These two joint ventures also produce cars for export to Europe, including the iX3 and an electric Mini, which will be subject to EU tariffs.
Other European Automakers
HSBC analysts stated that Swedish automaker Volvo, owned by China's Geely Holding Group, has a quarter of its car sales coming from the Chinese market, with about 10% of its total profit derived from the Chinese market. About 4% of the cars Volvo sells in China are imported, with the rest produced locally.
Stellantis has a smaller exposure in the Chinese market but recently invested in Chinese EV maker Leapmotor. Stellantis will handle sales of Leapmotor cars in Europe and plans to export two Leapmotor EVs from China by the end of the year, which will be affected by EU tariffs.
Like other luxury car manufacturers, Ferrari imports all the cars it sells in China, accounting for 9% of its global sales. However, Ferrari can leverage its pricing power to pass on the cost of tariffs to customers.
French automaker Renault has limited exposure to the Chinese market, operating through joint ventures with Jiangling Motors, Brilliance Auto, and Nissan. However, the Renault Dacia Spring EV, produced by its local partner Dongfeng Motor, and exported to Europe, will be subject to EU tariffs. In May, Renault and China's Geely Holding Group also announced the formation of a joint venture to develop internal combustion and hybrid engines.
