EU moves against China’s electric carmakers in bid to shield own industry

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The EU has announced an anti-subsidy probe into China’s electric car industry in an attempt to shield European manufacturers before they are priced out by Chinese rivals.

While imports of Chinese electric vehicles currently represent only a small share of the bloc’s market, they are growing fast and could hit 15 per cent within two years — in a repeat of what the EU experienced with solar panels over a decade ago.

“We cannot afford to lose our car industry,” said a senior EU diplomat.

The EU is banning the sale of new combustion engine cars from 2035 to cut carbon emissions and fears their electric replacements will be made in China, not Europe.

European Commission president Ursula von der Leyen announced the investigation on Wednesday, marking a further escalation of tensions with Beijing over a series of policies aimed at reducing the bloc’s dependence on the Asian powerhouse.

European Commission president Ursula von der Leyen
European Commission president Ursula von der Leyen © Philipp von Ditfurth/dpa

An EU official said subsidies had already enabled Chinese imports to undercut European EV prices by around 20 per cent. If the commission finds that domestic producers have been harmed, it could levy tariffs, likely to be around 10-15 per cent. The probe is expected to last nine months.

Any measures would also hit foreign investors who benefit from subsidies abroad, potentially including Tesla of the US and Sweden’s Polestar among others. They would cover battery vehicles but not hybrids.

“EU producers in China will be considered as Chinese exporters . . . so they will have to fight for their own duty rate,” said Arnoud Willems, a trade lawyer at Baker McKenzie.

He said the action would only be moderately effective because it did not include imported batteries. A 10 per cent tariff already applies to all car imports from China. 

The bloc has learned a lesson from its failed attempt a decade ago to save its solar industry from cheap Chinese imports — which were bought by European consumers with subsidies from their own governments. 

Brussels imposed tariffs in 2012 but lifted them six years later because it could not reach its renewable energy targets without Chinese production after many domestic suppliers shut down.

“We won’t let our market be flooded by over-subsidised EVs that threaten our companies as happened with solar panels,” said Laurence Boone, France’s Europe minister. Robert Habeck, Germany’s economy minister, also backed the probe into electric cars.

An FAW-Volkswagen production line in Foshan in Guangdong province, China
An FAW-Volkswagen production line in Foshan in Guangdong province, China © Oriental Image via Reuters

The EU automotive industry provides nearly 13mn jobs, and makes up 7 per cent of the bloc’s economy, according to Acea, the European carmakers’ body. It also accounts for almost a third of total R&D spending. 

“If you lose scale you cannot maintain the level of investment and you lose competitiveness,” said an EU official.

In addition to competing with cheaper EVs from China, European manufacturers are also relying on batteries made by Chinese companies in Europe or China. This issue is harder to counter with tariffs, in part because work has already begun building Chinese-owned battery plants across Europe, and because western carmakers have already integrated batteries from businesses such as BYD, CATL or Envision into their models. 

China believes battery technology is its strategic chance to dominate the auto industry. 

Tu Le, founder of Beijing-based advisory company Sino Auto Insights, said the probe announced on Wednesday “says as much about the uncompetitiveness of European EVs and politicians being fearful that the EU manufacturers won’t be able to design and manufacture competitive EVs any time soon”.

Trade defence measures against China are not unusual but this is the biggest case since the EU started hardening its stance on China last year, prompted partly by US pressure and Beijing’s support for Russia in its war with Ukraine. 

Valdis Dombrovskis, EU trade commissioner, will visit Beijing next week to discuss the trade relationship. In August he told the FT he would also pressure China to cut its huge trade surplus with the EU, which doubled to almost €400bn in 2022. 

Lithium-ion batteries being produced for electric vehicles at a factory in Huzhou
China believes battery technology is its strategic chance to dominate the auto industry. © Reuters

The commission said the EU market share taken by Chinese vehicles had leapt from almost nothing to 8 per cent in three years and would hit 15 per cent in two more years without action. 

If the commission proposes duties, a majority of member states could block them. EU diplomats have noted that Berlin and other capitals are reluctant to take too harsh a stance against Beijing for fear of retaliation against their own carmakers’ businesses in China.

While French groups Renault and Stellantis have been outspoken on the threats, German carmakers Volkswagen, Mercedes-Benz and BMW are heavily reliant on the China market for their profits, and are wary of stoking anti-European sentiment among Chinese buyers.

“If you look back at the past 30 years, WTO-driven opening-up of markets and growth has been a win-win for everyone.” Mercedes-Benz chief executive Ola Källenius told the FT last week. “We are not pro ‘pulling this system apart’, and will continue to invest [in China].”

Additional reporting by Gloria Li in Beijing and Laura Dubois in Strasbourg

Financial Times

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