The European Union has significantly reduced tariffs on Tesla vehicles manufactured in China, potentially boosting Tesla’s future sales in the region compared to its electric vehicle competitors.

This notable change follows a recent EU decision to increase tariffs on all electric vehicles (EVs) imported from China, citing concerns over “unfair” state subsidies that they argued gave Chinese EV manufacturers an undue advantage over European firms.

Tesla, which operates a factory near Berlin but exports a substantial portion of its Chinese-made vehicles to Europe, had requested a revision of the initial tariff rate of 20.8%.

On Tuesday, the European Commission, the EU’s executive body, lowered this rate to 9%.

This new rate is in addition to the existing 10% EU duty on all EV imports. However, it is significantly lower than the extra tariffs ranging from 17% to 36.3% imposed on other Chinese automakers.

The European Commission stated that this revised tariff reflects the “level of subsidies” Tesla received, noting that it had verified this information during a visit to China and conducted checks similar to those applied to other sampled Chinese exporters.

Gregor Sebastian, a senior analyst at Rhodium Group, expressed surprise at Tesla’s additional tariff being set at “only 9%,” given the company’s local government loans in Shanghai and subsidized batteries from Chinese manufacturer CATL.

Sebastian mentioned that while the additional duty is still challenging for Tesla, it might offer the company “some breathing room” compared to SAIC, its main competitor in Europe, which now faces a 36.3% additional tariff reserved for “non-cooperating companies.”

Geely, which owns Sweden’s Volvo, faces a 19.3% additional tariff, while BYD, which is competing with Tesla for the top spot in global battery EV sales, is subject to a 17% additional duty.

The additional tariffs for these companies are slightly lower than those initially proposed in June, following a more detailed investigation and feedback from the automakers. Some Chinese companies with joint ventures with EU automakers may benefit from lower duties of 21.3%, rather than the higher 36.3% rate.

China’s Commerce Ministry has expressed strong opposition and concern regarding the EU’s decision on EV tariffs, characterizing the investigation’s findings as “distorted” and pledging to “resolutely defend the legitimate rights and interests of Chinese companies.”

Following the implementation of the initial EU tariffs in July, Tesla increased the price of its Model 3 in Europe by approximately 4%, or €1,500 ($1,666), bringing the price to €42,490 ($42,177) due to the higher duties.

Despite this, the Model 3 remains more affordable than the BYD Seal, according to George Whitcombe, an automotive research analyst at Rho Motion. With the reduced additional tariff for Tesla, the Model 3 should continue to be competitive with other Chinese-made EVs in Europe.

BYD has yet to raise prices in Europe despite the higher tariffs. The company, which has lower production costs compared to its European prices, is better positioned to absorb these additional duties, with estimates suggesting it could handle up to a 45% EU tariff.

BYD could also increase exports of plug-in hybrid electric vehicles, which are not subject to the current tariffs on battery EVs, or potentially produce cars in Turkey to avoid tariffs altogether, as imports from Turkey are not subject to the same duties.

Despite the increased tariffs, Chinese EV manufacturers are unlikely to abandon the European market, which represented over a third of their exports last year, exceeding the total exports to the next five largest markets combined, according to Citi. Chinese automakers continue to benefit from a substantial margin on their European sales, as noted by Whitcombe.