Chinese car makers turn to hybrids to avoid EV tariffs from the EU

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Major Chinese electric vehicle (EV) makers may have found a way to sidestep the EU’s increased tariffs on electric cars, while continuing to expand their European market share.

Companies such as BYD, Geely and state-owned SAIC have been ramping up their hybrid exports to the EU, mainly because these are not subject to the EU’s tariffs. Hybrid cars use both electric batteries and internal combustion engines. 

Other Chinese car producers have also moved their assembly and production facilities to the continent, to further slash the cost and impact of tariffs. 

The Chinese hybrid vehicles are expected to provide tough competition for both Japanese and European models, with companies such as Toyota, Honda, and Nissan already seeing dropping sales partly because of this. European car makers such as Volkswagen are also being impacted. 

China exported 65,800 hybrid cars to Europe from July to October this year, according to the China Passenger Car Association (CPCA). This was over triple the number exported in the same period last year. 

BYD offers hybrid models such as the SEAL U DM-i, which will be its first European hybrid model, as well as the Song Plus DM-i, whereas Geely has plug-in hybrid (PHEV) models like the Galaxy Starship 7. It also has mild hybrid models such as the Geely Azkarra. Mild hybrid vehicles typically have only a small electric motor which is used to support a traditional engine. 

SAIC also has many hybrid vehicles such as the MG6 PHEV, the SAIC Roewe Erx5 Super Hybrid Edition SUV, the MG3 HEV and the MG EHS Plug-in Hybrid. 

The EU recently imposed increased tariffs on Chinese EV makers, amid allegations of the Chinese government subsidising these manufacturers, thus allowing them to sell their products at steep discounts in the European market. This in turn, has heavily impacted domestic European car makers, whom the EU seeks to protect with these tariffs. 

BYD has been slammed with a 17% tariff, whereas the duty for SAIC is 35.3%, with Geely having a rate of 18.8%. 

Although this strategy of avoiding tariffs by focusing more on hybrid vehicles may work in the short-term, it could also potentially lead to new EU tariffs against Chinese hybrids, especially if the impact on domestic European producers is too severe. 

Why are Chinese hybrid vehicles becoming so popular in the EU?

One of the main reasons that Chinese hybrids are becoming increasingly popular in the EU is because of them being relatively cheaper than European hybrids, as well as EVs in general. This cost factor has become even more important for buyers following the pandemic, amid the ongoing European cost of living crisis, as well as higher interest rates.

Chinese hybrid models also offer a greater range of features, as well as sleeker, more modern designs, both for their interiors and exteriors, which have gained a lot of European attention. This also includes better automotive technology. 

Furthermore, several Chinese hybrid manufacturers have also significantly improved their reliability and quality, as well as safety ratings. 

These hybrid models often act as a stepping stone for consumers who wish to switch entirely to EVs down the line, but are hesitant due to a range of reasons, including unfamiliarity and cost.

Hybrids are often cheaper than EVs, while offering the comfort of a traditional engine during the transition period to EVs. In several countries, they can also be eligible for tax breaks.