Title: EU Launches Anti-Subsidy Probe into Chinese Electric Vehicles
Subtitle: Investigation to Determine Potential Imposition of Punitive Tariffs on Chinese EV Imports
Date: September 13, 2023
Brussels – The European Commission has initiated an investigation into the potential imposition of punitive tariffs on Chinese electric vehicle (EV) imports, citing alleged state subsidies that enable them to undercut European Union (EU) producers. The probe comes as the EU aims to protect its domestic market against cheaper Chinese electric vehicles.
In her annual address to the bloc’s parliament, European Commission President Ursula von der Leyen expressed concern over the flooding of global markets with cheaper electric vehicles, which she claims are kept artificially low due to substantial state subsidies. Von der Leyen’s statement is seen by many in Brussels as a move to secure her re-appointment for a second term.
The investigation, which could last up to 13 months, will allow the European Commission to evaluate whether to impose tariffs exceeding the standard 10% EU rate for cars. With political and trade tensions between China and the EU escalating, many EU member states are seeking to reduce their dependence on China, the world’s second-largest economy.
European car manufacturers are increasingly recognizing the need to produce lower-cost electric vehicles and catch up to China’s lead in developing more consumer-friendly models. Concurrently, Chinese EV manufacturers, including BYD, Xpeng, and Nio, are intensifying efforts to expand into overseas markets as competition within China increases and domestic growth slows. Data from the China Passenger Car Association (CPCA) shows that China’s auto exports surged by 31% in August, following a 63% jump in July.
According to Jato Dynamics, the average retail price of Chinese-brand electric cars in Germany was 29% lower than that of non-Chinese EV models. Similar price differentials were observed in France (32% lower) and the UK (38% lower), with Chinese EVs becoming increasingly popular in the European market. Consultancy firm Inovev notes that Chinese brands accounted for 8% of new EVs sold in Europe this year, up from 6% in the previous year and 4% in 2021. Prominent Chinese models exported to Europe include SAIC’s MG and Geely’s Volvo brand.
Following the EU’s announcement, shares of Chinese EV producers, such as BYD, Nio, and Xpeng, experienced declines. European carmakers, including Volkswagen, BMW, Mercedes Benz, and Stellantis, initially saw a brief boost in their shares but subsequently erased most of the gains.
The influx of cheaper Chinese electric vehicles has prompted some European car manufacturers to take action, such as Renault’s decision in July to reduce production costs for its EV models by 40%. These companies face increased pressure from their US rival, Tesla, which has been lowering prices throughout the year.
Germany’s auto association, the VDA, has urged the EU to consider possible backlash from China in response to the investigation. The association suggests that policymakers focus on creating favorable conditions for European players to succeed domestically, such as lowering electricity prices and reducing bureaucratic hurdles. Germany’s car industry heavily relies on China for a significant portion of its sales revenue and has consistently advocated for maintaining open trade relations.
Emphasizing the importance of electric vehicles for the EU’s environmental objectives, von der Leyen stated that Europe is open to competition but not for a race to the bottom. She highlighted the devastating impact of cheaper Chinese imports on the EU’s solar panel industry a decade ago and stressed the need for an active industrial policy to enhance the competitiveness of the EU industry.
According to consulting firm AlixPartners, China’s state subsidies for electric and hybrid vehicles totaled $57 billion between 2016 and 2022, facilitating the country’s emergence as the world’s largest EV producer and surpassing Japan as the largest auto exporter in early 2023. Although China terminated its 11-year subsidy scheme for EV purchases in 2022, certain local authorities continue to offer aid, tax rebates, and subsidies to attract investments and support consumers.
In April, the founder of Nio cautioned Chinese EV manufacturers to prepare for the possibility of foreign governments implementing protectionist policies. He estimated that Chinese companies enjoyed a cost advantage of up to 20% over rivals like Tesla due to China’s control over the supply chain and access to raw materials.
While the investigation unfolds, experts suggest that the EU must focus on developing an active industrial policy to enhance the competitiveness of its domestic EV industry. Analyst Simone Tagliapietra of think tank Bruegel deemed the probe the beginning of a lengthy journey towards achieving a balanced market.