New US and EU tariffs on Chinese EV supply chains look to further isolate China from its EV ambitions
Against a backdrop of slowing electric vehicle (EV) demand growth, the US announced in May that it would increase
tariffs on Chinese imports throughout the electric vehicle supply chain, the latest in a series of tough policy stances towards China. As well as tariffs of up to 100% on Chinamade electric vehicles, new duties will also apply to lithium
-ion battery cells (25%), natural graphite, permanent magnets and other critical minerals imports.
Currently China dominates nearly every aspect of the electric vehicle and battery supply chain, with 85% of the global
cell supplies sourced from China in 2023, according to the Benchmark Lithium Ion Battery Database.
Up to late 2023, electric vehicle sales in the US were accelerating. Underpinned by an EV tax credit powered by the
Inflation Reduction Act (IRA), more stringent emissions standards, the popularity of Tesla’s Model Y, and promises from OEMs to go all-in on EVs, growth was supercharged to reach 103% year-on-year in 2021. It also remained strong in 2022 and 2023, stabilising at around 50%, which outpaced both China and Europe last year.
In 2024, however, growth has gradually slowed from a peak of 61% year-on-year in Q3 2023, to 29% in Q1, and
Benchmark expects growth of roughly 11% in Q2. OEMs are showing few signs of this improving later in the year: Q1 saw Tesla post its first sales decline since 2019 and subsequently cut back its workforce (including its entire
supercharging team). Several OEMs have also postponed production and announced plans to revisit hybrids, citing
weak demand.
At face value, the tariffs on China seem fruitless — Chinese EVs have contributed almost nothing to the US market so
far. While EV exports from China increased seven-fold since 2020 to 1.55 million units in 2023, only 12,416 ended up in the US, according to the General Administration of Customs People’s Republic of China (GACC).
However, the US is moving early to ensure local production and supply chains are prioritised, due to the potential risk
of rapid increases in the future. Indeed, Chinese automakers have naturally looked towards international markets as their home market increasingly approaches saturation.
As the second largest car market in the world, the US is a natural target, and increased price sensitivity from consumers in recent years will create opportunities for low-cost Chinese models.
A primary driver for the recent slowdown in US demand has been the fall in consumer purchase power as high inflation and interest rates have persisted, as well as the cancellation of low-price EV models, particularly in large-vehicle segments.
In the US, large vehicles are king: of the 13.7mn light duty vehicles sold in 2022, 79% were classed as ‘light trucks’, with only 21% as ‘passenger cars’, according to the Bureau of Transportation Statistics. By comparison, around 3% of EVs sold were electric pickups in 2023, with all priced over $50,000.
While several $40,000 electric pickups were initially announced – the approximate price of a conventional Ford F150 –including from GM (Silverado EV), Ford (F150 lightning) and Tesla (Cybertruck), these have been delayed or cancelled. For example, Tesla’s Cybertruck, launched in December 2023,starts at a base price of just under $61,000, more than$20,000 higher than the initial announcement.
Moreover, several major western OEMs are still loss-making on EVs, making achieving cost parity in large vehicle segments (which demand larger batteries) an even greater challenge for domestic producers. In Q1, the EV division of Ford (the Model E division) made a net loss of $1.3bn, or approximately $130,000 per EV sold.
OEMs, particularly Tesla, have continued to make price cuts in recent months, which has helped mitigate the slowdown in demand. It is also worth noting that a decline in growth is not negative growth: Benchmark predicts the US will sell around 1.5mn battery and plug-hybrid electric vehicles in 2024, up 9% YoY.
While at a slower pace than previously expected, Benchmark still expects the US market to grow up to 2040, driven by emissions standards tightening through to 2035 and the continued development and investment into local supply chains. By 2040, Benchmark predicts battery demand in North America to grow to 15 times 2023 levels, reaching around 1.6TWh/year. Following suit, in June 2024 the EU also announced increases to tariffs on China-made electric vehicles, following a nine-month investigation. The increases are more lenient than the US, varying between 18% and 38% (on top of existing 10%tariffs), and depending on different factors including the level of OEM cooperation provided during the investigation.
Due to their price competitiveness, Benchmark does not expect the EU’s tariffs to fully lock Chinese OEMs out of the European market. In addition, plans to build local production facilities in Europe are also underway, with Hungary set to house a BYD plant after offering incentives and tax breaks to attract foreign investment.
After several years of rapid growth, EV demand in Europe slowed considerably in 2022 and 2023 due to the ongoing effects of the Ukraine war and high inflation. Despite the tariffs, Benchmark expects the broader entry of Chinese models to provide a boost to growth, particularly as a new phase of emissions standards drive a new wave of EV sales in 2025 (passenger car standards will fall roughly 7% to 93.6 gCO2/km WLTP*). By 2040, Benchmark predicts EV battery demand in Europe will rise to 1.6TWh, nearly a 10-fold increase from 2023 levels.
By Luke Gear, Principal Analyst
Benchmark Mineral Intelligence
*WLTP: Worldwide Harmonised Light Vehicle Test Procedure
Benchmark publishes unrivalled prices, data and insights on critical mineral mining to platform technology: lithium-ion batteries, electric vehicles, energy storage, and rare earth permanent magnets.
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