In a move that has sent shockwaves through the global automotive industry, the European Commission has initiated an investigation into whether to impose punitive tariffs on Chinese electric vehicles (EVs) entering the European market. This investigation has sent shares of Chinese EV manufacturers tumbling, raising questions about the potential repercussions for the EV market and international trade relations.
One of the key drivers behind China's push to export EVs abroad is the domestic overcapacity in its automotive industry, due to a stagnating local economy. Bill Russo, CEO of Shanghai-based advisory firm Automobility, told media that estimates he's seen, put China's spare capacity at 10 million vehicles per year – which would be the equivalent of two-thirds of all North American auto production in 2022. This oversupply issue has prompted Chinese manufacturers to seek new markets overseas, with Europe emerging as a significant destination.
Europe's appeal as an export market for Chinese auto brands stems from several factors. Firstly, the stringent emissions regulations in the European Union have incentivised consumers to adopt electric vehicles. Secondly, Europe's relatively smooth trade relations with China, in contrast to the escalating trade tensions with the United States, have made it an attractive destination for Chinese exporters.
You only have to look at products like WhichEV's Car of the Year for 2023, the MG4 – as well as the popularity of products like the Polestar – to see just how much value has been available from Chinese makers.
Customs data reveals that Chinese new energy vehicle shipments to the European Union surged by a staggering 112% during the first seven months of 2023 compared to the previous year. This growth was even more remarkable when compared to 2021, with a remarkable 361% increase in exports. Consequently, the European Commission noted that China's share of EVs sold in Europe has risen to 8%, with projections suggesting it could reach 15% by 2025.
The primary reason for the lower prices of Chinese-made EVs is attributed to Beijing's decade-old industry promotion policy, characterised by incentives and subsidies. This policy has propelled China to become the world's largest EV market and, according to the EU, has enabled it to control the global EV supply chain, including crucial raw materials. EVs produced in China are typically 20% cheaper than their European counterparts, according to the European Commission.
This subsidy-driven policy has also fostered the growth of industry giants such as CATL – the world's largest EV battery maker – and BYD, which recently overtook Volkswagen as China's best-selling car brand. These cost and supply chain advantages have lured foreign companies like Tesla, Renault, and BMW to manufacture in China.
The European Commission's anti-subsidy investigation encompasses battery-powered cars from China, affecting both Chinese and non-Chinese manufacturers operating in China. Tesla, as the largest exporter, accounts for 40% of China's EV exports, while other popular Chinese brands, including Geely's Volvo and SAIC's MG, have made significant inroads into the European market.
Estimates by consultants AlixPartners suggest that Chinese state subsidies for electric and hybrid vehicles totalled a massive $57 billion between 2016 and 2022. While China's best-known EV subsidy program aimed to stimulate consumer purchases, many local authorities have continued to offer additional incentives and tax rebates to attract manufacturing investment and bolster consumer demand.
So how have these accusations by the EU been met by China?
China has strongly condemned the European Union's decision to investigate subsidies in its burgeoning electric vehicle market, and calls it ”sheer protectionism'. Beijing's top official for European affairs, Wang Lutong, took to Twitter to defend China's position, citing subsidies provided by EU members to their own electric vehicle industries. Wang argued that the EU had no grounds to launch an anti-subsidy investigation into Chinese EVs.
The European Commission's investigation has generated mixed reactions within Europe. While some political leaders, including French Economy Minister Bruno Le Maire and German Environment Minister Robert Habeck, welcomed the inquiry as a means to address unfair competition, business groups expressed concerns that it could lead to retaliatory measures from China and potentially harm European interests.
Hannes Schumann, a spokesman for the German Association of the Automotive Industry, highlighted the complexity of the situation, emphasizing the need to consider causal damages and potential reactions from China. The European Automobile Manufacturers' Association (ACEA) acknowledged the investigation as a positive step toward addressing the competitive disadvantage faced by European auto manufacturers due to China's cost-competitive imports.
When WhichEV spoke exclusively with Citroen CEO back in Vincent Cobée, he told us that he was not in favour of tariffs against Chinese manufacturers – or subsidies to help European manufacturers. He said that the only thing European Governments needed to do, was to push money into things like creating local battery production.
The most famous ‘barrier to entry' erected so far, has come from the United Kingdom – with the Government's insistence that at least 40% of a new EV be manufactured in the UK – or the manufacturer will be faced with an additional tax. This has led (directly or indirectly) to the UK now expecting to have at least three substantial battery production facilities up and running in the near future.
Chinese business groups operating in Europe have voiced their strong opposition to the investigation. The China Chamber of Commerce to the European Union, representing over 1,000 Chinese companies in the EU, argued that China's advantage in the electric vehicle market was not solely a product of state subsidies but also a result of innovation.
The initiation of this investigation marks a significant development in the global electric vehicle market and trade relations between the EU and China. As the investigation unfolds, its impact on the industry and the broader implications for international trade will continue to be closely monitored.
So, what do we think? Should China be allowed to subsidise its EV manufacturing operation in order to provide the world with much cheaper cars? Are the European concerns valid – or is an expensive local industry trying to ensure that its prices are protected from open pricing in a global economy?
This issue does bring up one of the so called ‘benefits of Brexit', in that decisions made by Europe would not necessarily have to be carried over to the UK. We have no local brands to protect. Could this mean that, for once, the UK would have car prices that are actually lower than mainland Europe?
Complicated times ahead.