SHANGHAI: China's deal with the EU to curb exports of hybrid vehicles to the bloc is a fresh hit to Chinese EV makers that have ramped up hybrid shipments exempt from EU tariffs on Chinese-made EVs, as sales growth slows at home.
China's exports of hybrids to the EU's 27-member states tripled to US$7.5 billion in the first half of this year from US$2.5 billion a year earlier, according to Chinese customs data. The figure was nearly nine times the US$845 million exported in all of 2021.
Since the EU imposed additional tariffs on Chinese-made EVs in 2024, Chinese automakers have increasingly turned to plug-in hybrids, which are exempt from the extra duties. Weak charging infrastructure in parts of Europe has also supported demand for plug-in hybrids, which are marketed for their long range and strong fuel economy.
SAIC, BYD and Chery accounted for more than 90% of Chinese hybrid sales volume in the EU, while hybrids represented more than half of their European sales, according to Jefferies.
Tariff risk off, quota risk on
While European trade commissioner Maros Sefcovic said on Friday the agreement would cut the ports of "several million cars over four years", Brussels and Beijing have yet to disclose how the arrangement will be implemented.
China's commerce ministry said on Monday that the arrangement will allow continued export growth and guarantee China a quota no smaller than that granted to any other source of imports.
Investors largely viewed the agreement as a de-escalation of trade tensions and a sign that tariffs on Chinese hybrids may be off the table for now. Shares in BYD fell 1.8%, while Chery and SAIC rose 0.25% and 0.4%, respectively.
"Overall we believe it is a risk-relief rally story...as the implementation rules, volume caps, price floors, carve-outs are still pending technical negotiation," Citi analysts said.
The rapid growth of Chinese hybrid sales has increasingly challenged European manufacturers, including Volkswagen, long the region's leading plug-in hybrid seller, said Li Yanwei, an analyst at the China Automobile Dealers Association.
BYD, China's largest hybrid vehicle exporter to Europe, sold more plug-in hybrids than fully electric models in the first eight months of the year, with its Seal U SUV its best selling model, according to data compiled by Li.
Together with Chery, SAIC and Geely, the company has narrowed the gap with Volkswagen, which still commanded a 31.8% share of the EU plug-in hybrid market.
"Let's see if China honours the agreement or finds workarounds, or temporary tariff exemptions," said Michael Dunne, a consultant who closely follows the Chinese automotive industry.
Analysts said the deal is set to expedite Chinese automakers' move to increase production in Europe.
"I would expect this to strengthen the incentive for Chinese automakers to manufacture in Europe," said Bill Russo, founder of Shanghai-based consultancy Automobility.
"If access through imports becomes more constrained, investing closer to the customer becomes more attractive. But localisation requires capital...smaller players may reconsider their European ambitions."
Jefferies analysts said the deal signalled "tariff risk off, quota risk on," potentially pushing Chinese automakers towards higher-priced models, increasing pressure on German premium brands and accelerating plans to build more vehicles in Europe.