EU lays out its China EV tariff calculations

By Nick Carey

LONDON (Reuters) - The European Commission on Thursday published the findings of its nine-month investigation into China's electric vehicle market, giving insight into how it calculated tariffs and the evidence it collected to support its highest profile trade case.

The report details reluctance by the Chinese government and state-owned automaker SAIC to cooperate with the Commission's investigation into whether Chinese EV makers benefit from unfair state support.

That justified imposing the top tariff rate of 37.6% on SAIC, while fellow Chinese automakers BYD and Geely face lower tariffs of 17.4% and 19.9% respectively to reflect their cooperation.

The document accompanied the announcement of provisional tariffs for Chinese-made electric vehicles of up to 37.6% which come into effect on Friday, ratcheting up tensions with Beijing which has threatened to retaliate.

It will likely form part of the Commission's defence if the Chinese government complains to the World Trade Organization.

The Chinese government's tight control over its automakers prevents them "from acting as rational market operators seeking to maximise profits, and in fact forces them to act as an arm of the government," the report says.

Thus, it concludes, the "threat of material injury" to Europe's automakers "is clearly foreseeable and imminent".

The report covers similar ground to a longer one the Commission released in April on the Chinese government's interference in its economy and strategic industries that analysts say lays the foundations for future trade cases as Brussels toughens its stance on Beijing.

Subsidies given to Chinese automakers, the Commission found, took the form of cheap loans, inexpensive land and direct incentives for selling EVs.

They also received help with the cost of batteries, the single most expensive part of an EV.

SAIC and Geely have access to batteries for "less than adequate remuneration," and while BYD makes its own batteries, it has access to subsidised battery materials, above all lithium.

REVEALING BREAKDOWN

Among the most revealing sections is a breakdown of the core types of government subsidies by company, which added together form the basis of each company's duty.

Take SAIC: the EU estimates its subsidies total 34.4%.

That breaks down into 1.38% for loans from state-owned banks, 8.27% for other forms of financing, 8.56% in the form of grants, 2.28% in EV sales incentives, 0.67% for cheap land and 13.24% for under-priced batteries.

Subsidies in the same categories total 15.1% for BYD and 19.72% for Geely.

The Chinese government has complained that the Commission sought an unprecedented amount of detailed information on Chinese automakers' supply chains during its subsidy investigation.

But the Commission catalogues lengthy back-and-forth arguments in a number of areas where Beijing either declined to cooperate or failed to provide more basic information, including the number of EVs registered in China, or registrations by brand, model and location.

"It is highly unlikely that the GOC (government of China) does not have information on the number of BEVs (battery electric vehicles) registered in China during a given period," the report said.

It also details evasion by SAIC, which said it could not provide the information requested.

Chinese financial institutions that lend money to SAIC, BYD and Geely "did not provide any creditworthiness assessment," so the Commission did its own investigation, the report said.

The three automakers all have top-notch 'AAA' credit ratings received from Chinese state-owned rating agencies - higher ratings bring lower interest rates.

But because of problem areas such as their high debt-to-equity ratios and use of loans to pay down debt, the Commission found that their overall financial rating corresponded to a 'B' rating. Investors consider bonds rated 'B' as junk bonds.

(Reporting By Nick Carey; Editing by Josephine Mason and Barbara Lewis)