BYD's Profit Margins and EU Tariffs on Chinese EVs

BYD, a prominent Chinese electric vehicle (EV) manufacturer, earns $15,400 in profit per BYD Seal U model sold in Europe, compared to just $1,400 per unit in China. This $14,000 difference, referred to as the EU premium, indicates BYD's substantial profit margins from European sales.

On June 12, the European Commission (EC) launched an investigation which found that China’s battery electric vehicles (BEVs) benefit from unfair subsidies. As a result, the EC imposed provisional import duties ranging from 17.4% to 38.1% on Chinese-made EVs, in addition to the existing 10% tariffs.

The Rhodium Group report highlights that a 30% duty on BYD Seal U would still result in a 15% profit margin above the Chinese level, amounting to a $5,080 EU premium per vehicle. Therefore, the profit disparity between the EU and China persists, making European exports lucrative for Chinese manufacturers.

These lower prices provide Chinese companies an opportunity to decrease their prices to capture a more significant market share in Europe. The report suggests duties of up to 55% might be necessary to deter Chinese exports and level the playing field.

However, these tariffs may adversely affect Western automakers like BMW and Tesla, which rely on Chinese production for their European exports. BMW’s iX3 SUV, for instance, has a 9% EU premium, meaning that tariffs above 9% would render European sales less profitable compared to China.

Chinese EV makers have more extensive vertical integration than their foreign counterparts, lowering production costs further. BYD, for example, owns lithium mines, constructs its own batteries, and operates its own shipping fleet, amplifying its competitive advantage.

The European EV market's appeal has led Chinese manufacturers like BYD and SAIC-owned MG to target increased exports despite the new tariffs. In 2022, China exported $9 billion worth of electric vehicles to Europe, representing over 30% of the European EV market.

Europe's move to impose tariffs on Chinese EVs has triggered responses from automotive giants and has been labeled protectionist by China. There is concern over potential retaliatory actions, as major manufacturers like Mercedes and BMW depend heavily on the Chinese market.

In contrast, the United States recently announced a 100% levy on Chinese EVs, further intensifying global trade tensions.

China remains committed to its green technology manufacturing strategy, with no indication of retreating from its aggressive EV production and export plans.