European Commission President Ursula von der Leyen has announced an anti-subsidy investigation into Chinese-made electric vehicles (EVs), which she says are being sold in Europe 20% cheaper than local competitors. “Global markets are now flooded with cheaper Chinese electric cars and their prices are kept artificially low by huge state subsidies. This is distorting our market,” von der Leyen said when announcing the investigation. She accused China of keeping car prices “artificially low by huge state subsidies”. The EU could impose punitive tariffs on cars it believes are unfairly sold at a lower price. China has warned that the probe would harm China-EU trade relations.
At 3.7%, these sales still account for a small share of the EU market, but are rising fast. EV imports from China jumped 113% in the first nine months of 2023 compared to a year earlier, while they have soared 78,000% since 2019. “It is a crucial industry for the clean economy, with a huge potential for Europe. But global markets are now flooded with cheaper Chinese electric cars. Their price is kept artificially low by huge state subsidies. This is distorting our market,” von der Leyen said. The investigation was informally requested by French carmakers and the French government, who are not very exposed to the Chinese sector. But the move had a mixed reception among industry groups, reflecting internal political complexities. The German Association of the Automotive Industry (VDA) urged the EU to consider “possible reactions from China” during its investigation, amid fears that Beijing might retaliate against companies that are reliant on the Chinese market.
German car brands such as Volkswagen, Mercedes-Benz and BMW are all heavily involved in China’s EV sector, in some cases deepening ties with their Chinese joint venture partners to produce electric cars for export to Europe. By contrast, the Brussels-based European Automobile Manufacturers’ Association, welcomed the move. “China’s apparent advantage and cost-competitive imports are already impacting European automakers’ domestic market share, with a massive surge in electric vehicle imports in recent years,” Director General Sigrid de Vries said. That challenge was laid bare in a study published last week by the Center for Strategic and International Studies (CSIS). While the EU ran a monthly car trade surplus with China of €2.2 billion between 2019 and 2021, that became a deficit for the first time in December 2022.
A small surplus returned in the first quarter of this year, but the report said that “unless local production of EVs increases significantly or the European Union makes use of trade defense instruments, it is likely that imports from China will continue to rise, and by 2024 the European Union will experience a constant auto trade deficit with China”. The driving force behind this shift is electric vehicles. A 27.5% tariff has priced Chinese EVs out of the U.S. market, but there are no such barriers in Europe. “The majority of made-in-China EVs are exported to Europe due to the region’s high demand, low import tariffs, and substantial government subsidies for EVs regardless of origin,” the CSIS report said. “In contrast to the United States, the EU has remained relatively open to Chinese greenfield investment and EV exports, so it faces somewhat different challenges.” An industry executive pointed to a call last month from the Founder and Chairman of Chinese EV giant BYD, Wang Chuanfu, for China’s carmakers to “demolish the old legends and achieve new world-class brands” as evidence that Beijing is systematically working to dismantle the European industry.
The day after von der Leyen’s announcement, China's Ministry of Commerce (MOFCOM) hit back at the EU’s “naked protectionism”, and said the measures “will have a negative impact on China-EU economic and trade relations”. Trade with China makes up around 2.5% of euro zone GDP, but Economy Commissioner Paolo Gentiloni appeared to be unfazed by the warning when asked about whether the bloc’s economy could survive any tariffs. “I’m confident, but we have to address this issue very seriously. I think there is no specific reason for retaliation but retaliation is always possible,” he said.
The investigation is groundless, unilateral and unfair, and the EV industry – along with China’s manufacturing sector in general – must prepare for “a hard fight” against more possible containment moves by Western countries in the near future, Chinese experts said. China’s EV industry will continue to boom and gain a stronger overseas presence, thanks to the country’s competitive edge in the EV value chain, especially in batteries, they added. “The Chinese EV industry’s success has its roots in China’s significant edge in the EV industrial chain, which has been built up over the years under sufficient market competition, not because of the so-called ‘subsidies’,” said Cui Dongshu, Secretary General of the China Passenger Car Association (CPCA). “The EU should hold an objective view on the development of China’s EV industry, rather than using unilateral economic and trade tools to obstruct the sector’s development or increase operating costs for Chinese carmakers,” Cui said.
Zhang Yansheng, Chief Researcher at the China Center for International Economic Exchanges, pointed out that the EU has acted purely out of “trade protectionism”. Underscoring that external pressures will only motivate China to forge a stronger domestic manufacturing industry, Zhang warned that the investigation might be just the start of a series of containment moves by the EU – and the United States – to hamper the development of the Chinese EV industry.
Yang, from Fitch Ratings, said the dominance of Chinese companies across the global EV value chain is set to be challenged by regulatory hurdles in the overseas market. According to the Global Times, China had ended all EV subsidies by 2022, while European carmakers still enjoy fiscal support from the government including tax benefits and incentives. Those Chinese companies who have come out ahead in Europe have survived fierce competition at home.
The probe comes after France pushed Brussels to take stronger action to defend European industry against growing threats from China and the United States. French Finance Minister Bruno Le Maire made a passionate defense of the EU’s strength as he rejected accusations of protectionism. “We don’t have to fear any country. We are the EU. We are one of the most powerful economic continents,” he told Bloomberg TV. “We are not here to trigger any kind of trade war,” he said, adding: “It has nothing to do with protectionism.” “It’s good news that Europe realizes the necessity to defend its economic interests,” Le Maire said, pointing to the United States and China acting to protect their economies.
Germany, one of the world’s biggest carmakers, is more reticent since its large, well-known brands are more exposed to the Chinese market than French manufacturers. However, German Finance Minister Christian Lindner backed the probe. “If there are concerns that it is not fair then it needs to be looked at. World trade is based on rules and they of course also apply to electric vehicles,” he said.
Gentiloni acknowledged that the level of trade with China “is differentiated among member states”. China represents the largest global market for major German car brands such as Volkswagen, Audi, Mercedes and BMW. It is also the main destination for French luxury giants LVMH, Kering and Hermes. Spanish Economy Minister Nadia Calvino insisted the EU was “a world trade superpower”, and fervently backed the Commission’s actions against China. “I am absolutely convinced that the European Commission will continue to drive a trade policy on the basis of an open rules-based trade framework,” she said.
In the first eight months of this year, a total of 727,000 NEVs were shipped overseas from China, up 110% year-on-year. However, data from the International Energy Agency showed that Chinese EV exports only accounted for 16% of those sold in Europe in 2022. Moreover, most electric vehicles that China exported to the EU last year were cars of U.S. and European brands made in China, while Chinese brands accounted for 40% of the exports, according to a report by Fitch Ratings. In 2022, Chinese automakers exported 545,244 NEVs to Europe, accounting for 48.66% of all NEV exports last year.
This overview is based on reports by the China Daily, the Global Times and the South China Morning Post.
