The war between Chinese EVs and the European Union is taking its next step, with new tariffs on China-made vehicles set to go into effect in July.

And while they may quell EV sales in Europe, they won’t stop them, according to new reporting from Nikkei Asia, who says that manufacturers like BYD will remain competitive against local producers despite the tariffs. 

SAIC is being hit with a 38.1% tariff and BYD is being hit with a 17.4% tariff, the report says. Geely Auto will face a 20% tariff and all tariffs are on top of the EU’s existing 10% tariff. 

Eugene Hsiao, head of China autos at Macquarie Capital, told Nikkei: “BYD’s cost advantage is high enough that they can profitably export even at a 35% tariff.”

He continued: “BYD has shown a strong willingness to work with local European partners, including establishing relationships with local dealers, selling batteries to Tesla in Germany, planning production in Hungary, establishing shipping dedicated to the EU and possibly even further partnership in other EU countries like Italy.”

Hsiao suggested that BYD’s lower rate might be due to its private ownership and backing by Berkshire Hathaway. He noted that BYD aims to gradually establish its brand in the EU and is more cooperative with local regulators.

SAIC, despite not cooperating with the EU’s anti-subsidy probe, received 11.74 billion yuan ($1.65 billion) in Chinese government subsidies over three years, per a Nikkei Asia analysis. BYD got slightly over half that amount but still ranked in the top 10 for government subsidies.

The report says that SAIC, the top auto exporter from China for eight years, sold over 250,000 vehicles in Europe in 2023. It claims its sales stem from technology innovation, not government subsidies.

SAIC commented: “We are deeply disappointed with the decision of the European Commission. The relevant measures not only violate the principles of a market economy and international trade rules but may also have a significant adverse impact on the stability of the global automotive industry and China-EU economic and trade cooperation.” 

China exported 482,000 pure EVs to the EU last year, making up 45% of its total EV shipments, according to customs data. Exports to the U.S. were minimal.

The Kiel Institute for the World Economy predicted that a 20% tariff would cut Chinese EV imports to the EU by 25%, equating to 125,000 units worth $3.8 billion.

Vicent Sun, an equity analyst at Morningstar concluded: “We think Chinese producers are still competitive compared with their rivals. The commission estimates that prices of Chinese EVs are typically 20% lower than prices of EU-made equivalent models. With additional tariffs, Chinese cars are at similar prices, but with more attractive designs and vehicle technology.”

In December, BYD announced plans to build a factory in Hungary, while other Chinese EV companies are partnering with European brands. In April, Chery Automobile and Spain’s Ebro-EV Motors agreed to develop EVs together in Barcelona. Last month, Stellantis announced a joint venture with Chinese startup Leap Motor to sell EVs in nine European countries this year.

Following the EU’s announcement, Beijing vowed to “take all necessary measures” to defend its rights. Analysts believe Beijing will retaliate but may exercise some restraint. Andy Mok from the Center for China and Globalization noted that Europeans, especially Germans, fear Chinese retaliation. He added that China considers the broader relationship with Europe and the geopolitical environment, not just EVs.