China EV Tariffs Hit Volvo, Polestar, and Tesla Hard

Today, the Biden administration announced significant new tariffs on Chinese-made electric vehicles (EVs) and Chinese-sourced batteries. While there has been concern in the auto industry about Chinese brands like BYD, Zeekr, and Xpeng entering the US market with cheaper EVs, the reality is that established brands will bear the brunt of the new tariffs. The import tariff on Chinese-made EVs is rising from 25% to 100%.

Volvo Car AB and Polestar, both majority-owned by China’s Geely Holding, are set to experience the most immediate effects of these tariffs. Currently, Polestar sells only one model in the US, the Polestar 2 (P2), which is exclusively manufactured in Luqiao, Zhejiang, China. Polestar plans to launch two additional models, the 3 and 4 crossovers, later this year. Until these new models are available, the P2 remains the primary offering for dealers.

The P2 is built on the same platform as Volvo’s XC40 and C40 crossovers, which are produced in Ghent, Belgium. While P2 production could potentially be added in Ghent, this would likely not occur before 2025, potentially leaving Polestar with no vehicles to sell in the US unless they have several months of inventory on hand. The P2’s starting price of just under $50,000 could soar beyond $80,000 due to the increased tariff, rendering it uncompetitive.

The Polestar 3, which shares its platform with the new Volvo EX90, is scheduled to be built alongside the Volvo at a plant in Charleston, South Carolina, later this year, potentially sparing it from the tariffs unless it uses Chinese-sourced batteries. The tariff on Chinese batteries is rising from 7.5% to 25%, adding thousands of dollars to the cost of any EV using these batteries. It is currently unclear where Volvo and Polestar source their batteries, so the impact on the P3 and EX90 remains uncertain.

The Polestar 4, already in production in China, was expected to be imported to the US in the coming months. Polestar announced plans to add P4 production at the Renault Korea Motors factory in Busan, South Korea, but this won’t commence until late 2025.

Volvo plans to launch the compact EX30 in the next few months, with initial production in China. The starting price of around $37,000 could exceed $50,000 due to the tariffs, making it uncompetitive. Volvo has announced plans to add EX30 production in Ghent, but not until 2025.

Geely and its brands, Volvo and Polestar, now face difficult decisions. They must decide whether to absorb the additional tariff costs for the Polestar 2 and 4 and the Volvo EX30 until production can be moved outside of China, or to pass these costs onto consumers, which would likely result in poor sales due to high prices. Alternatively, they might delay the launch of new models until 2025, when production outside of China begins. None of these options are appealing for Geely and its brands.

For General Motors, Ford, and Tesla, the challenge comes from the increased tariffs on Chinese batteries. While these companies produce EVs in China, none of those vehicles are imported to the US. However, Tesla and Ford both import lithium iron phosphate (LFP) batteries produced by CATL, the largest EV battery producer in the world, for use in the standard range versions of the Model 3, Mustang Mach-E, and F-150 Lightning. GM has announced that the next-generation Chevrolet Bolt will also use LFP batteries from an as-yet-unidentified supplier when it debuts in late 2025.

Chinese companies like CATL and BYD dominate the market for lower-cost LFP batteries. Alternatives from outside of China won’t be available until at least late 2025. Korean companies LG, Samsung, and SK ON have announced plans for LFP production from late 2025 to 2026, but the new tariffs will be in effect before then. Michigan-based Our Next Energy is building an LFP production facility in Michigan but won’t be producing in volume until 2025. Ford is also building an LFP plant in Michigan using technology licensed from CATL, but it won’t be operational until 2026.

The new tariffs will offset most of the savings automakers gain from using LFP batteries instead of the more expensive nickel-cathode cells used in most other EVs. Toyota uses CATL batteries in some variants of its bZ4X, and Hyundai uses similar batteries for the new Kona EV.

With the increased battery tariffs taking effect next year, automakers face tough decisions: re-source batteries from another supplier or raise vehicle prices. Given the already high price sensitivity in the mainstream market, raising prices is not a viable option. Automakers must make critical decisions in the coming weeks and months.