Title: European Commission Investigates Potential Punitive Tariffs on Chinese Electric Vehicles
Date: September 14, 2023
Shanghai, China – In a move that sent shares of Chinese electric vehicle (EV) makers tumbling, the European Commission announced on Wednesday its initiation of an investigation into whether to impose punitive tariffs to safeguard its producers from the influx of cheaper Chinese EV imports that reportedly benefit from state subsidies. Here are some key questions surrounding this development:
1. WHY EXPORT TO EUROPE AND HOW MUCH HAS IT GROWN?
The push by Chinese auto manufacturers to expand overseas can be attributed to the slowing demand in their domestic market, China, further exacerbating overcapacity issues. It is estimated that China has an excess auto capacity of approximately 10 million vehicles per year, which is equivalent to two-thirds of North American output in 2022. Europe, with its stringent emissions regulations and favorable trade ties with China, has emerged as a crucial export market for Chinese auto brands. According to customs data, Chinese shipments of new energy vehicles to the EU increased by 112% in the first seven months of 2023 compared to the previous year, and a significant 361% from 2021. The European Commission stated that China’s share of EVs sold in Europe has risen to 8% and is projected to reach 15% by 2025.
2. WHY ARE CHINA-MADE EVS CHEAPER?
China holds an advantage in producing EVs more affordably than any other country, primarily due to Beijing’s decade-old industry promotion policy, involving incentives and subsidies, that facilitated China’s rise as the largest EV market globally. This policy enabled China to establish control over the global EV supply chain, including raw materials. EVs manufactured in China are typically 20% cheaper than models produced in the EU, as reported by the European Commission. Consequently, this policy has given rise to industry giants such as CATL, the world’s leading EV battery manufacturer, and BYD, which recently surpassed Volkswagen as China’s top-selling car brand. China’s cost and supply chain advantages have also attracted foreign companies like Tesla, Renault, and BMW to establish manufacturing operations within the country. Tesla’s Shanghai plant alone produced over 700,000 vehicles in 2022, accounting for half of the U.S. automaker’s total output.
3. WHO IS THE EU’S INVESTIGATION TARGETING?
The European Commission’s anti-subsidy investigation encompasses battery-powered cars from China, thereby also including non-Chinese manufacturers operating within China. The largest exporter of Chinese EVs is Tesla, which accounted for 40% of China’s EV exports between January and April, according to the Center for Strategic and International Studies. Other popular Chinese brands exported to Europe include Geely’s Volvo and state-owned automaker SAIC’s MG. Additionally, companies such as BYD, Nio, and Xpeng have started expanding their presence in European countries like the Netherlands and Denmark.
4. WHAT SUBSIDIES HAVE BEEN ROLLED OUT?
Chinese state subsidies for electric and hybrid vehicles reportedly totaled $57 billion between 2016 and 2022, according to estimates by consultants AlixPartners. China’s most well-known EV subsidy program, aimed at stimulating purchases, began in 2009 and was gradually phased out last year. It disbursed nearly $15 billion in subsidies to encourage EV purchases through 2021, as estimated by China Merchants Bank International. In June, China announced a tax break package worth 520 billion yuan ($72 billion) over four years to promote sales of EVs and other green vehicles. Several local authorities continue to provide separate aid, tax rebates, and consumer subsidies to attract manufacturing investments and stimulate the economy.
The European Union’s investigation targets a wide range of potential unfair subsidies, including pricing manipulation of raw materials and batteries, preferential lending, and cheap land provision. As the investigation progresses, its outcome will play a crucial role in shaping the dynamics of China-EU trade relations in the EV market.
Reporting by Brenda Goh; Additional reporting by Ellen Zhang; Editing by Miyoung Kim and Clarence Fernandez