Article Type: podcast

Have provisional tariffs driven down EV forecasts in Europe?  

How have provisional tariffs on battery-electric vehicles (BEVs) made in China impacted European electric vehicle (EV) forecasts? Autovista24 editor Tom Geggus speaks with Neil King, head of forecasting at EV Volumes (part of J.D. Power), in a new podcast episode.

Forecasting the market trajectories of BEVs and plug-in hybrids (PHEVs) worldwide is no small feat. Variables include economic trends, current conflicts, industry behaviours and consumer confidence.

Protectionist policies, such as import tariffs, are being increasingly discussed and utilised globally. This makes them an important factor to consider when assessing the potential performance of EV markets.

So, how have the European Commission’s provisional tariffs on BEVs made in China impacted expectations and will growth be stunted? Are carmakers likely to raise prices and what other strategies might they employ?

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Show notes

How have global EV forecasts reacted to strong headwinds?

EU Commission confirms provisional tariffs on BEVs made in China

BEVs made in China face new provisional EU tariffs on top of existing duties

Has the plug been pulled on Europe’s new BEV market?

How to recharge Europe’s battery-electric vehicle market

The forecast

In his latest forecast, King outlined his expectations for light-vehicle markets worldwide. This covers both passenger cars and light-commercial vehicles. By the end of this year, Europe can expect to see overall year-on-year registrations growth of 2.6%.

While this is down on the 3.1% increase forecast in March 2024, it might be surprising that the market is still expected to grow. EVs in particular are currently facing numerous headwinds in Europe.

This includes major new-car markets shrinking or ending purchase incentive schemes. Germany suddenly withdrew its programme at the end of last year, while France revised its list of eligible vehicles. Switzerland also completely removed its 4% import tax exemption for BEVs.

Carmakers are also able to stay below their prescribed CO2 limits this year without the need to sell more EVs. This has meant their attention could currently return to turn back towards petrol and diesel models, which are typically more profitable.

Therefore, EV sales are forecast to grow by 4.9% this year, despite anticipated slower growth for the wider market. This means BEVs and PHEVs would collectively account for 21.8% of all new light vehicle sales in Europe.

The tariff effect

One of the most important aspects of the EU Commission’s tariffs is that they are still provisional, so their effects are not concrete. Definitive duties are expected to be announced at the beginning of November. Before then, the Commission can be expected to continue talks with Chinese officials.

Reuters reported that the Chinese government has also turned to the World Trade Organisation (WTO) dispute settlement mechanism. The country’s commerce ministry said the EU’s preliminary findings lacked a factual and legal basis. Alongside this, carmakers currently only need to provide bank guarantees.

‘The import duties themselves are actually immaterial,’ King said. ‘It is only if and when they have an impact on prices. If the OEMs pass on their impact to consumers through high prices. That is when we would see an impact.’

Within this environment, the vast majority of carmakers have not adjusted their prices. Even if the duties do become definitive, carmakers have different strategies at their disposal. For some, absorbing any additional costs instead of passing on any price increase will be viable.

Carmakers may also take advantage of stock already shipped and imported into the region. In the long term, carmakers may also choose to produce models locally. This would not only avoid import tariffs but ensure EVs can keep their lifetime emissions down.

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How could Russia’s invasion of Ukraine impact the European automotive industry?

With Russia escalating its aggression towards Ukraine into an invasion, severe sanctions are inevitable. Depending on how the situation plays out in the coming weeks or months, the European automotive market will see an impact as well. In this special episode, Autovista24 editor Phil Curry, Autovista Group chief economist Christof Engelskirchen, and Autovista Group director of valuations Roland Strilka discuss the possible scenarios for the industry.

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Episode synopsis

The escalating situation between Russia and Ukraine, which has seen the former send troops across borders and launch air and sea attacks, has the potential to destabilise many markets, including automotive.

Further sanctions are inevitable, and they will be severe. This will have an economic impact, not just on Russia but also those countries declaring them. They may include a ban on exports of high-technology into Russia, which will also impact the companies that trade in this field.

While there are already some impacts of the escalation being felt, such as an increase in the price of oil and energy, other issues will take moretime to unfold. There are two possible scenarios, and each has a differing influence on the automotive market.

In the first scenario, where Russia largely retracts to the separatist regions of Donetsk and Luhansk without conflicts escalating much further, there will be no lasting impact on Europe’s new-car markets, other than the Russian market, as there is an ongoing supply shortage. Lack of supply into Russia can be compensated by selling to other countries.

There will, however, be a small impact on used-car markets, as there might initially be a slight dent in demand for cars, in particular in Eastern Europe, but this will be short-lived in this scenario, especially since weakened exchange rates support current residual values

Most severe

The second scenario sees Russia occupying Ukraine. This is the maximum level of aggression that we believe Russia believes it can afford. Ultimately in this outcome, the most severe sanctions will be imposed, and these will more negatively economically impact both Russia, and those countries declaring them.

Western Europe will be more affected economically by this than for example the US. Not only will the region need to re-align economies towards other areas of the world for some time, it will also need to deal quickly with the rising energy, gas, oil and food prices, as well as supporting Eastern European markets financially and economically to support in their stabilisation. Eastern Europe will be more negatively affected in this scenario, as they are more dependent on economic relations with Russia.

There will be very little impact on new-car markets in Western Europe, as there is an ongoing supply shortage. Even if there will be lower demand for new cars in Russia and Eastern Europe, it is unlikely that this cannot be compensated by selling to other countries.

Several used-car markets in Eastern Europe may still see fewer transaction, yet stable, possibly even rising residual values, as inflation and exchange rate pressure will overcompensate the reduced demand.  This would come after a period of severely rising prices. The market in Western Europe will be less affected, but the expected increases in RVs for 2022 and 2023, in particular for internal-combustion engine (ICE) vehicles, may be slightly lower than initially forecast.

The automotive industry has spent the last two years dealing with a supply chain disruptions. In this time, supply chains should have become more resilient , meaning should problems arise with the supply of components out of Russia, other suppliers   have a vested interest to sell at rising prices. Supply shortage and supply chain disruptions may end up being less impactful in the medium term than during the COVID-19 crisis.