What Biden’s China Tariffs Mean If You Want to Buy an EV

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Tariff Shock

Last week, President Joe Biden announced higher tariffs aimed at Chinese electric vehicles and components, including a 100% tariff on all Chinese EVs, and a 25% levy on EV batteries and parts produced in the country.

These changes are intended to help shore up U.S. jobs and reduce economic reliance on China. But for prospective buyers of electric vehicles, they could mean higher costs.

Pricing Pressure

The 100% tariff is more of a symbolic gesture than anything else, as rather few Chinese EVs are currently imported by the U.S. However, the 25% tariff on batteries and parts – an increase from 7.5% before – could have a much more meaningful impact on the domestic market.

Lithium iron phosphate (LFP) batteries often rely on Chinese components, unlike higher-end batteries that contain nickel and cobalt. Tesla (TSLA) uses them in its standard-range Model 3 — the EV maker’s most affordable model — and  Ford’s (F) puts them in its standard-range Mustang Mach-E. The increased tariffs could therefore raise the production costs and ticket prices of these cars.

Then there are tax credits: An EV’s battery must be made of at least 60% North American-made materials to qualify for the $3,750 battery components portion of the $7,500 tax credit. By 2029, that percentage will rise to 100%.

Onshore Dilemma

In light of this pricing concern, Ford is considering an onshoring strategy with a new plant in Michigan. But the increased costs of onshoring could offset cost benefits. Tesla CEO Elon Musk has emphasized the challenges of reducing costs without relying on Chinese supply chains — meaning these changes could well lead to increased prices in the U.S.

If you’re considering buying a new EV, keep these developments in mind before driving off the lot.

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