HONG KONG (S&P Global Ratings) June 17, 2024--The Chinese automakers we rate will be able to cope with the EU's provisional tariffs on import of Chinese battery electric vehicles (BEVs). Their exposure to BEV exports to Europe are small and these companies can manage tariffs jumping by up to 38.1% starting next month, on top of the existing 10% rate.
"This move will likely curb the growth in China's BEV export to Europe. Such sales jumped by over 30% last year, and BEVs imported from China contributed to over 20% of total BEV sales in Europe in 2023," said S&P Global Ratings credit analyst Stephen Chan. "However, the overall impact is limited as China-made BEVs exported to Europe contributed less than 10% of the country's total auto exports last year."
In our view, the increased tariffs could help protect the infant BEV market from China's highly competitive product offerings. They are lower, however, relative to the more restrictive 100% tariffs announced by the U.S. in May 2024. The provisional tariff varies among different carmakers (see appendix) and will become effective since July 4, 2024.
Among the impacted carmakers, Tesla Inc. (BBB/Stable/--) is exposed the most given its strategic focus on BEV production in China. We estimate 10% of its sales in 2023 were BEVs exported to Europe from China. That said, Tesla's individually calculated duty rate may be lower than other automakers due to potentially lower subsidies from the Chinese government.
Chart 1
Chart 2
"We believe automakers will increasingly diversify their production base to Europe and South East Asia to mitigate potential geo-political impact in the next few years," said Mr. Chan.
For example BYD Co. Ltd. (unrated) has announced plan to build EV factories in Thailand, Hungary, and Indonesia for international expansion. Volvo Car AB (BB+/Stable/--) has also started to shift its BEV production from China to Belgium to mitigate the widely expected tariff hikes. Chery Automobile Co. Ltd. (unrated) is also setting up a factory in Thailand for the domestic and export markets.
Among the rated Chinese automakers, Zhejiang Geely Holding Group Co. Ltd. (BBB-/Negative/--) has higher BEV export exposure from its strategic investment, Polestar Automotive Holding UK PLC (unrated) and subsidiary, Volvo Car . Nevertheless, we estimate the exposure at less than 2% of its total sales volume in 2023.
Table 1
| BEV exports to Europe make up less than 2% of total sales for rated China-owned automakers | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Rated Chinese automakers' exposures to BEV exports to Europe (2023) | ||||||||||
| Auto carmakers | BEV export to Europe (%) /total auto export | BEV export to Europe (%) /total sales | Est. EV penetration* (%) | Total sales volume (in' 000 units) | ||||||
| Zhejiang Geely | 27.5 | 1.7 | 35.1 | 2,790 | ||||||
| China FAW | 2.3 | Minimal | 7-10 | 3,367 | ||||||
| Beijing Auto | 0.1 | Minimal | 7-10 | 1,708 | ||||||
| *Our estimates of EV as a percentage of total sales for the automaker. Sources: EV volumes, S&P Mobility, S&P Global Ratings. | ||||||||||
We expect the credit profile of Zhejiang Geely to remain under pressure on margin strains amid its product transition to EVs. Improving economies of scale on EVs and lower battery cost will likely support the company's profitability recovery in the next six to 12 months. That said, intensifying price competition in China adds high uncertainty to our forecasts.
The tariff impact on Beijing Automotive Group Co. Ltd. (BBB/Stable/--) and China FAW Group Co. Ltd. (A/Stable/--) will likely be minimal, given their negligible exposure to BEV exports to Europe in 2023. We expect their EV production in China will mainly be used to serve the Chinese market over the next 12 months.
Meanwhile, proprietary brands will likely further gain market share within China if the country raises the import tariff on gasoline cars with engines larger than 2.5 liters to 25% from 15% as retaliation. We estimate these types of vehicles contributed 32% of passenger vehicle imports into China in 2023. Passenger vehicle import contributed to 3% of China's total light vehicle sales during the year. Such development could benefit the growth of proprietary brands of our rated Chinese issuers. The market share of proprietary brands increased to 56.0% in the first five months in 2024, compared with 51.8% in 2023.
We also think the European tariffs will be manageable for the world's largest battery supplier, Contemporary Amperex Technology Co. Ltd. (A-/Stable/--). By our estimates, the company only had a low-to-mid single digit percentage of total sales volume exposure to China-made BEVs exportedto Europe in 2023. The company will likely leverage on its German plant and the upcoming Hungarian mega-factory to localize its battery production in Europe and mitigate the tariff impact in the next few years.
APPENDIX
Tariff rates, on top of the existing 10% rate, vary by carmaker. Some carmakers, such as Tesla, are still negotiating with the European Commission. Others have been announced:
- BYD: 17.4%
- Geely: 20.0%
- SAIC Motor Corp: 38.1%
- Other BEV producers in China, which cooperated in the anti-subsidy investigation: 21.0%
- Other BEV producers in China which did not cooperate in the investigation: 38.1%
This report does not constitute a rating action.
S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,600 credit analysts in 27 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.
| Primary Credit Analysts: | Stephen Chan, Hong Kong + 852 2532 8088; stephen.chan@spglobal.com |
| Claire Yuan, Hong Kong + 852 2533 3542; Claire.Yuan@spglobal.com | |
| Secondary Contacts: | Vittoria Ferraris, Milan + 390272111207; vittoria.ferraris@spglobal.com |
| Nishit K Madlani, New York + 1 (212) 438 4070; nishit.madlani@spglobal.com | |
| Crystal Ling, Hong Kong +852 25333586; crystal.ling@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.