In a groundbreaking move, European Commission President Ursula von der Leyen announced an “anti-subsidy investigation into electric cars from China” in her State of the Union speech. This significant development has sent shockwaves through the global automotive industry and could dramatically alter the landscape of electric vehicle competition.
China’s emergence as a major car exporter, fueled by its dominance in production, has disrupted traditional market dynamics. Brands like MG, BYD, and Nio have made substantial inroads in the European market, causing alarm in an industry responsible for over 6% of EU employment.
This investigation, the first in a series of measures planned by Europe to safeguard its automotive sector, poses a pivotal threat to Chinese electric car expansion. For the first time, Chinese brands stand a genuine chance of outcompeting foreign counterparts on European soil. Von der Leyen’s announcement led to a significant dip in share prices for leading Chinese car companies like SAIC and BYD, underscoring the investigation’s gravity.
At the heart of the probe lies the concern about Chinese electric cars’ impact on the European economy, particularly its automobile industry. Europe’s traditional trade balance with China in the automotive sector turned negative in December 2022, marking a critical shift. China’s advantage in electric car and battery technology enabled brands, both Chinese and Western like Tesla, to increase production in China and ship vehicles to Europe.
Europe now serves as a prime export market for Chinese electric cars, aided by affluent consumers and subsidies offsetting transportation costs. Nearly half of China’s exported cars find buyers in Europe, making it a battleground for the industry’s future.
The prospect of Chinese manufacturers resorting to dumping, selling products at minimal profits, looms large. This threat has become existential, especially for iconic European brands like Volkswagen, the world’s largest automaker. The investigation represents not only a regulatory measure but a turning point that could determine the fate of global automotive players.
The inquiry’s official details are limited, but von der Leyen’s remarks indicate a focus on Chinese government subsidies artificially lowering electric car prices. If proven, European officials might impose higher import duties, a move that could take about a year after a comprehensive investigation, says Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.
European automakers, while potentially benefiting from weakened Chinese competition, face a dilemma due to their investments and partnerships in China. Many Western companies manufacturing in China contribute significantly to these exports and might face the brunt of these tariffs designed to protect them.
This investigation, in the larger context, signals a political turning point. Europe, historically friendlier to Chinese companies than the US, now views them as potential threats. While these measures might be seen as protectionist, they could also serve as invitations for Chinese companies to establish production within European borders, potentially reshaping the global automotive industry in ways yet unforeseen.