EU Commission Announces Chinese EV Subsidy Probe
The Lede: On Wednesday, European Commission President Ursula von der Leyen announced that the EU will be launching a probe into Chinese state subsidies for electric vehicles, which they argue have unfairly undercut their car brands.
What We Know:
- Von der Leyen argued that the flood of cheap EVs onto the global markets propped up by excessively generous state subsidies has put European carmakers at a severe disadvantage.
- The anti-subsidy investigation brought by the European Commission covers EVs from China such as BYD, Great Wall, and MG, but also includes non-Chinese brands made there, such as Tesla, Renault, and BMW. The decision was spurred by the French government and its industry proxies while the German government expressed opposition to punitive measures as its major brands have significant exposure to the Chinese market and could suffer in a trade war.
- The European Commission will have up to 13 months to decide whether to impose tariffs above the standard 10% EU rate for cars. At the latest Munich Motor Show, senior executives emphasized that tariff escalations would be counterproductive.
The Background: The rise in Chinese EVs is reminiscent of China’s domination of the European solar panel market in the past, which also flirted with a trade war. Until now, China’s share of EVs sold in Europe stands at about 8% but could reach 15% in the next two years. Prices of EVs from Chinese manufacturers are typically 20% lower than EU-made models. In addition to provincial and local government subsidies, Chinese central government subsidies for their automakers total $57 billion between 2017 and 2022.
Likely Outcomes:
- The U.S. has already imposed heavy tariffs on Chinese car imports while offering subsidies for domestically produced EVs. The EU could follow the U.S. lead and implement the same kinds of measures. In the end, European consumers would have to pay more for EVs in general, which would slow the adoption rate for such vehicles amid the green transition agenda by raising the barrier to entry for purchases.
- A high-level economic and trade dialogue between the European Union and China is scheduled for September 25 in Beijing. EU Trade Commissioner Valdis Dombrovskis will likely discuss this anti-subsidy investigation while also trying to manage other trade barriers between the two sides with an emphasis on the ‘de-risking’ narrative.
- As the EU Commission carries out its decision on possible tariffs in the next months, there will likely be push-back from segments of the automotive industry that have interests in the China market that would be negatively affected by these measures. The outcomes of the EU-China High-level Economic and Trade Dialogue at the end of the month must also be considered as it will set the tone for possible responses from Beijing.
Quotables:
“As we do not accept this from the inside, we do not accept this from the outside. Europe is open to competition but not for a race to the bottom. We must defend ourselves against unfair practices." – Ursula von der Leyen, president of the European Commission
“It is a naked protectionist act that will seriously disrupt and distort the global automotive industry supply chain, including in the EU, and it will have a negative impact on China-EU economic and trade relations…China will pay close attention to the EU’s protectionist tendencies and follow-up actions, and firmly safeguard the legitimate rights and interests of Chinese enterprises.” – response by the Chinese commerce ministry
“China’s new energy vehicles exports are seeing stronger volumes not due to huge state subsidies, but because of the highly competitive China industrial supply chain from strong market competition domestically.” – Cui Dongshu, secretary-general of the China Passenger Car Association
Good Reads:
EU to investigate 'flood' of Chinese electric cars, weigh tariffs (Reuters)
China attacks EU’s ‘naked protectionist act’ on electric cars (FT)
France puts screws on EU chief to hit back against Chinese electric vehicles (Politico)
Von der Leyen hits China with electric vehicle subsidy probe (Politico)