Chinese EVs are facing a tariff wall in the West. Will they turn to India now?

The development comes on the back of reports from European Commission meetings that the European Union (EU) is planning to increase its import duty from 10% to 25-30% on all Chinese electric vehicles and batteries to protect domestic producers. The US, too, has proposed to quadruple tariffs on Chinese EVs to 100% to discourage cheap imports.

The proposed EU tariffs are expected to be announced in July, raising the possibility of Chinese manufacturers redirecting their excess inventory to markets like India, the people cited above said on condition of anonymity, adding that he ministry of commerce and industry has been tasked with spearheading these efforts, working in collaboration with other relevant departments and agencies.

As of now, India’s primary focus will be on preventing dumping of EV batteries as their import could start soon after the tariff hikes; import of EVs will be regulated in later stages, the people cited above said.

The first person said that measures under consideration include increasing import duties on Chinese EV batteries, implementing stringent quality control standards, and promoting domestic production through incentives and support for local manufacturers.

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“We have our directorate general of trade remedies (DGTR) system in place, and our anti-dumping measures are operational. If any dumping occurs, we have an institutional mechanism to address it," the first person added.

“We are implementing policies to ensure that India has sufficient capabilities for the production of EVs and batteries," the second person said.

Under the revamped EV policy, India has opened its doors to all EV manufacturers, including those from China. Chinese companies are now eligible to apply for benefits under the scheme, a senior government official said, on condition of not being named.

“However, the path for Chinese EV makers may not be straightforward due to geopolitical tensions. Despite the revamped EV policy, the government retains the sovereign right to permit or deny any company’s entry based on security analysis," the official added.

This means that even with the policy in place, Chinese companies will still undergo thorough scrutiny before being allowed to operate in India.

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Queries emailed to commerce secretary Sunil Barthwal and the commerce ministry’s spokesperson remained unanswered till press time.

European Commission spokesperson Olof Gill said in response to a Mint query that the Commission had initiated an ex-officio anti-subsidy investigation on 4 October 2023 on imports of Chinese battery electric vehicles for passengers.

“Any investigation shall be concluded within maximum 13 months of initiation. Provisional anti-subsidy duties may be proposed by the Commission by nine months after initiation, followed by four months to impose definitive measures if legally warranted. Before any such measures are imposed, information about the imposition of provisional duties is provided to Union producers, importers and exporters, their representative associations, and the country of origin and/or export, in line with the procedures set out by the Regulation," Gill said.

What really are the concerns?

Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), a research group focused on climate change, technology and trade, said that with both the US and the EU reducing their imports of Chinese EVs, China is likely to shift its focus to other markets, including India.

“This could involve dumping EVs or entering the Indian market through joint ventures (JVs) that use primarily Chinese-made parts," said Srivastava. “As a result, in the coming years, a significant number of Chinese EVs could be on Indian roads. Every third electric vehicle, as well as many passenger and commercial vehicles, could be made by Chinese firms independently or through JVs with Indian companies."

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Srivastava added that such an influx would offer Indian consumers more affordable EV options, it may also pose “a threat to domestic auto manufacturers who may struggle to compete with subsidized Chinese vehicles".

As per EU trade data, the European Union (EU) imported 500,000 electric vehicles (EVs) from China in 2022-23, nearly a third of China's total EV exports that year. However, the EU is now considering several measures to restrict these imports, including anti-subsidy duties and high tariffs on Chinese EVs. Additionally, the EU may reduce import quotas.

Similarly, the US proposed on 15 May to increase tariffs on Chinese EVs from 25% to 100%, aiming to counter what it sees as unfair trade practices by China. In 2023, China exported $368 million worth of EVs to the US.

Monitor, but exercise caution

Utkarsh Sinha, managing director of boutique advisory firm Bexley Advisor, said while the concerns of an influx are genuine, India already has robust protections in place. “These safeguards will undoubtedly be tested as Chinese manufacturers face pricing pressures due to ongoing US tariffs. However, it is unlikely that these measures will be breached, thanks to the strong anti-dumping defences currently in place," Sinha said.

India has established anti-dumping mechanisms under the DGTR to impose duties on imported goods sold below fair market value, protecting domestic industries from unfair competition. India has implemented anti-dumping measures by levying duties on steel imports from China, rubber chemicals from the EU, and certain types of paper from Indonesia and Singapore.

Besides, the consumer affairs ministry has implemented quality control orders on Chinese toys, household appliances and steel products, among others, to protect Indian manufacturers and safeguard consumers from potentially harmful products.

“We must exercise caution when applying anti-dumping duties due to their potential downstream impacts on Indian manufacturers," warned Rahul Ahluwalia, co-founder of Foundation for Economic Development (FED), a not-for-profit organization. “Imposing dumping duties could adversely affect Indian EV manufacturing startups. Therefore, we must be very careful in applying such measures to avoid hampering the growth of this emerging sector."