US Tariff Hike on Chinese Electric Vehicles to Impact Component Supply Chains
Even though Chinese automakers have shown little interest in conquering the US market, President Joseph Biden recently increased tariffs on imported Chinese-made electric vehicles by fourfold, reaching 100% of their cost. Industry experts and market participants foresee that these changes will significantly impact component supply chains.
China’s Control of Battery Materials
A direct impact on automakers’ business through these new US import tariffs will only occur if China retaliates with measures that affect the export of materials used for power battery production or completed batteries from China. China is known to dominate the global market for power batteries and is the largest supplier of many materials used in their production, such as graphite and lithium compounds. According to the Nikkei Asian Review, Chinese suppliers may not directly control access to some types of raw materials, yet they have a significant financial influence on the industry, such as Chinese investors heavily investing in nickel mining in Indonesia, a metal crucial for producing certain types of power batteries.
Advantageous Situation for South Korean Companies
The increased tariffs on Chinese batteries and electric vehicles could be advantageous for South Korean firms, as their products would become more competitive. However, Samsung Electronics already advises its suppliers to avoid shipping Chinese-made components due to fears of additional tariff hikes on Chinese-origin products imported into the US.
Adapting to the New Tariffs
LiteOn Technology, an automotive electronics manufacturer, has anticipated this development and has started building a factory in Texas. Electronic components for the local market will be produced in Texas to avoid being affected by further sanctions against Chinese products.
Last year, more than 20% of lithium batteries imported into the US were produced in the country, so increased tariffs will affect the cost of local electric vehicles, even if they’re produced under inherently American brands. Paradoxically, certain categories of American citizens can still claim subsidies when purchasing American-made electric vehicles equipped with batteries containing Chinese-made materials. Thus, the US authorities are raising import tariffs, taking money from consumers, and then partially returning them in the form of subsidies.
While the increased American tariffs may not impact Chinese automakers’ business in the short-term, they can restrict their export expansion opportunities for Chinese electric vehicles in the long term, experts explain. As the Chinese domestic market is highly competitive and close to saturation, many Chinese automakers have set their sights on major export markets, which remain Europe and the US. However, the latter has proactively secured itself against an influx of Chinese electric vehicles, while European authorities are yet to decide how much to increase import tariffs on Chinese electric vehicles.
The Future for Chinese Automakers
Despite the hurdles, leading Chinese automaker BYD persists in denying intentions to enter the US passenger electric vehicle market. Still, it aims to build a production facility in Mexico and even recently presented its first hybrid pick-up, Shark, initially set for export, in this country. Chinese automakers may relocate some of their factories to Southeast Asian countries to overcome trade barriers in the US, while less extensive markets such as Australia remain available for exploration.
