The US and EU have implemented some major tariffs on Chinese EVs to protect their domestic auto industries.
President Joe Biden announced substantial increases in tariffs on Chinese-made goods, mainly targeting EVs. The tariff on Chinese EVs has risen from 25 percent to 100 percent. Additionally, tariffs on Chinese lithium-ion batteries have increased from 7.5 percent to 25 percent. This move aims to shield the US market from the influx of competitively priced Chinese EVs.
Similarly, the European Union (EU) has taken action. Starting in July, the EU will impose extra duties of up to 38.1 percent on imported Chinese electric cars. The European Commission is also considering how to address Chinese subsidies, proposing additional tariffs that could raise the total duty on Chinese EVs to nearly 50 percent. These measures are designed to protect European manufacturers, many of whom produce vehicles in China, and are affected by these tariffs.
Historically, India has been the dumping ground for Chinese electronics and other products whenever the EU and the US have rejected them. In the case of EVs, though, things are a little different.
The Chinese threat
The surge of Chinese electric vehicles (EVs) into the global market has caused significant concern in the United States and Europe. These regions, known for their stringent automotive standards and competitive markets, are wary of the high-quality yet affordable Chinese EVs, and for good reason. Earlier this year, Tesla CEO Elon Musk highlighted the threat, asserting that Chinese EVs could overshadow most other car companies globally without trade barriers.
The heightened tariffs in the US and EU raise concerns that India might become a dumping ground for Chinese EVs. Historically, Chinese electronics, especially those that failed to penetrate US and European markets, have found a market in price-sensitive India. While the EV market, particularly for four-wheelers, may differ, vigilance is necessary to prevent a similar scenario.
China’s dominance in the EV sector is not coincidental. Initially, the US led the EV market, mainly due to companies like Tesla. However, China’s EV industry has grown exponentially over the past five years, outpacing the US.
China accounts for about 60 percent of global EV sales and controls a significant portion of the EV supply chain, including critical components like lithium-ion batteries. Reports indicate that China holds 85–95 percent of the production capacity for major battery components and around 70 percent of global lithium refining capacity.
China’s strategic investment in EV technology began in 2001 with a research and development program focusing on batteries, motors, and other related technologies. A decade later, China introduced generous subsidies to promote domestic EV purchases, ensuring that imported EVs did not qualify for these benefits and faced tariffs. Local content requirements for manufacturing subsidies further boosted domestic production.
Beyond economic gains, China’s EV push addresses environmental and strategic concerns. If China decreases its reliance on coal-fired electricity, adopting EVs will help reduce air pollution in urban areas and mitigate climate change significantly. Furthermore, EVs reduce China’s dependency on imported oil, constituting about three-quarters of its consumption—a higher dependency ratio than the US experienced even at its peak.
Threat to India
China’s robust EV ecosystem and substantial production capacity threaten established markets in developed countries. With its nascent EV industry, India could become a target market for Chinese EVs and regions like Europe, Latin America, and Southeast Asia.
Stellantis, the world’s third-largest carmaker based in Amsterdam, which owns brands such as Chrysler, Citroën, Fiat, and Jeep, is considering the local manufacturing of affordable electric vehicles (EVs) from its Chinese joint venture partner, Leapmotor, at its facility in Thiruvallur, Tamil Nadu, as per a report by The Economic Times. Stellantis already manufactures EVs under the Citroën badge in Thiruvallur.
As India takes its initial steps in developing its EV sector, careful monitoring and strategic planning are crucial to navigating the influx of Chinese EVs and fostering a sustainable and competitive domestic EV market.
India’s new policy, announced on March 15, aims to boost investment in the local manufacturing of high-end electric cars. The government will allow the import of CBU electric cars with a minimum cost, including insurance and freight value, of $35,000, or about Rs 30 lakh, at an import duty of 15 percent. This will be applicable for five years if the manufacturer sets up a factory in India with an investment of at least $500 million.
Lessons from the smartphone Industry
Chinese smartphone makers disrupted the Indian manufacturing landscape through aggressive pricing, rapid innovation, and strategic market penetration.
Leveraging China’s robust manufacturing ecosystem, companies like Xiaomi, Oppo, and Vivo were able to produce high-quality smartphones at significantly lower costs than Indian manufacturers.
This cost advantage allowed them to flood the Indian market with affordable, feature-rich devices, quickly gaining popularity among price-sensitive Indian consumers.
Moreover, Chinese brands employed intelligent marketing strategies, including extensive online sales, partnerships with e-commerce platforms, and significant investments in retail infrastructure. They also introduced frequent product launches with cutting-edge technology, which kept Indian competitors struggling to keep up with the rapid pace of innovation.
Moreover, they started buying manufacturing units through their Indian subsidiaries. Additionally, aggressive promotional campaigns and endorsements by popular celebrities helped build brand recognition and consumer trust rapidly.
Indian manufacturers, on the other hand, faced challenges such as higher production costs, limited R&D capabilities, and slower adoption of new technologies. This disparity in operational efficiency and innovation led to a decline in market share for Indian brands, ultimately impeding their ability to compete. Consequently, Chinese smartphone makers became dominant players in the Indian market, effectively sidelining domestic manufacturers.
With EVs, though, things won’t be as easy for Chinese players. Having learned their lessons from Chinese smartphone makers and how they decimated a budding smartphone manufacturing industry, India is likely to be better prepared. Moreover, Chinese smartphone makers had one significant advantage: they did not have to face an established Indian smartphone maker. In the case of EVs, things are slightly different.
The players in the Indian EV market
Although small, India’s EV market is increasing. In 2023, passenger vehicle sales grew by 10 percent year-on-year, while EV sales nearly doubled. Despite this growth, EVs only account for 2 percent of total passenger vehicle sales in India, compared to nearly 38 percent in China.
Tata Motors dominates the Indian EV market, accounting for just over two-thirds of the market share. Mahindra & Mahindra, BYD, and MG Motor are emerging players. Mahindra, in particular, has seen a staggering increase of over 2400+ percent, with just one EV in its portfolio in 2023.
Meanwhile, Maruti Suzuki, India’s largest carmaker, is yet to enter the EV space, and Tesla is also expected to arrive by the end of the year.
India prepared
India’s EV ecosystem is still in its nascent stage. It depends on government policy incentives to attract players, including Reliance, Ola, and Exide, to set up EV battery manufacturing units. However, developing a local ecosystem that significantly reduces EV prices will take several years.
In this situation, Chinese EV makers can leverage their ecosystem for expertise and components while manufacturing in India, giving them a competitive edge over Indian rivals.
However, because of the geopolitical tensions between India and China, the Narendra Modi-led Indian government will do just about everything to stop the influx of cheap Chinese EVs to Indian shores.
The Indian government has introduced regulations which allow the government to go through foreign investments with a fine-toothed comb. The objective is to find links to neighbouring countries, namely China and Pakistan and see if potential investments could potentially be detrimental to national securities.
The Narendra Modi-led NDA government has used these regulations to keep Chinese EV-makers at bay. Back in 2023, the government of India famously blocked BYD from setting up a factory in India at an investment of over $1 billion.
The Indian EV market is projected to grow rapidly. Counterpoint Research expects EV sales to constitute one-third of total passenger vehicle sales by 2030. Needless to say, this presents a massive opportunity for all the players in India’s EV market and sets them up for a hotly contested market.
