Despite this uniformity in production costs, there are dozens of retail prices – broadly one for every market in which it is sold internationally. Profit margins differ around the world and are generally highest in Europe. However, the difference is not typically huge for identical models, meaning the global variation in retail prices for the car reflect factors beyond the material content of the car, the cost of its manufacture and the need to make a profit on its sale.
These factors turn out to make a big difference. A new entry level BMW iX3 model in China costs about ¥400,000. This is just under $55,000. While the same model costs roughly $57,000 in Australia, it rises to $66,000 in the US, $71,000 in Germany and $78,000 in the UK. That equates to a difference of $23,000 between Shanghai and London. While one of the most expensive places in the world to buy an iX3 is in BMW’s hometown of Munich.
So, what accounts for this $23,000 difference? Some of it is the cost of moving the car around the world from the factory to the place it is sold. But less than you might think. At standard shipping rates, even on some of the longest international routes, car transit between major deepwater ports rarely represents more than a surcharge of a few percentage points on the initial Chinese wholesale cost.
Inland transport to move the car from port to inventory to dealership will add more. But this still accounts for only a small part of the differential. The distance between China and Korea and China and Germany via Rotterdam is of an order of around 10, but the price differential is nothing like that. An 8,000km journey to Australia ends in a car that is $11,000 cheaper in Sydney than it is in Seoul.
More significant than logistics in determining final prices are a set of frictional costs in the form of border taxes, sales taxes and registration taxes. The former are particularly prevalent in the other major car-producing markets such as the US and Europe. Until midway through 2024, an importer paid 27.5% to import a Chinese-made electric vehicle into the US, 10% to import it into the UK and Germany, and 35% to import it into Brazil. Some of these jurisdictions, such as the UK and Germany, then charge additional sales taxes, that are up to 10% higher than China’s.
At some level, governments have a sense of these frictional costs, because they have tried to drive them down to encourage us to buy electric cars like the iX3, but only to a point. While the US has large subsidies for EVs these exclude Chinese-made cars. Several other states have subsidies for smaller cars than the iX3. Australia used its free trade agreement (FTA) with China to eliminate tariffs on all Chinese electric cars. Malaysia has done something similar on a unilateral basis by eliminating duties until 2025, alongside a similar domestic commitment to waive sales tax on EVs until 2028. Unusually for a large car producer, Japan has no import duties on cars at all.
However, several countries are moving in the other direction. In September 2024, the US raised its import duty on Chinese EVs to 100%. Around the same time the EU started levying a ‘trade defence’ duty of between 20-37% on Chinese EVs, claiming that this was required to balance the effect of subsidies in China. The category of ‘Chinese’ EVs of course also includes ‘German’ EVs made in China, a problem for overly literal politicians. In March 2025 the new Trump administration imposed tariffs of 25% on most automobile and automobile parts imported in to the US.
The apparent result in both cases has been to prompt BMW to disaggregate part of its iX3 production back to Hungary, to mitigate both US and EU duties. Carmakers outside the US now face a difficult calculus on how, or if, to service the US market at all. Whether any of this produces a cheaper car for consumers will depend on the difference between labour and production costs in different parts of the world and what it means to break up that model and try and replace it with something else. Experience suggests strongly that consumers will not be the winners.
The most fundamental point here is incredibly topical and has nothing to do with electric vehicles or subsidies specifically. Frictional costs in supply chains are largely paid by consumers, not companies. If local retailers of BMWs were able to absorb the import duties via their profit margins, we would not see variable retail prices around the world in the way we do. The frictional cost is passed on to the customer, as it usually is. A tariff is not a tax on a foreign manufacturer, it is a tax on a local buyer. If they don’t pay it via the tariff, they will probably pay it via the more expensive product.
For all its flaws, the creation of a globalised economy has been a formidable efficiency machine for companies like BMW and the consumers they serve. Frictional costs steal that efficiency back from both company margins and consumer prices. In the current era of increased protectionism and tariffs, it seems likely we will have plenty of reason to reflect on the $23,000 question.
