The European Union (EU) has initiated an investigation into the influx of Chinese-built electric vehicles (EVs) in the market. The investigation follows complaints from EU-based automakers about the unfair trade practices resulting from Chinese government subsidies. The EU probe aims to assess the need for tariffs to create a level playing field and determine the potential impact of such tariffs.
Chinese EV manufacturers, including BYD, NIO, and XPeng, have recently entered the European market, claiming significant market share. These Chinese EVs not only rival European counterparts in terms of technology but are also priced significantly lower, averaging 29% less. The EU alleges that these lower prices are the result of massive state subsidies provided by China, which total over $57 billion from 2017 to 2022.
The EU is concerned about the growing market penetration of Chinese EVs, both within the EU and in China itself. Reports suggest that Chinese EVs could account for 15% of cars sold in the EU in the near future, despite constituting only 8% of the current market. Additionally, German automakers, heavily invested in exports to China, have seen China become their largest global sales market. The influx of Chinese EVs in China has raised concerns among German carmakers.
The EU Commission chief described the situation as a “flood” of cheaper electric cars, whose artificially low prices are sustained by substantial government subsidies. In response to the investigation, China has issued a statement warning that any tariffs imposed by the EU would disrupt the global automotive industry supply chain and negatively impact China-EU economic relations.
The United States has already implemented large tariffs on Chinese-built vehicles, favoring protectionist policies to promote domestic EV adoption. These policies may limit US consumers’ access to lower-priced Chinese electric vehicles, potentially slowing down the growth of EV adoption rates in the country. Chinese EV manufacturers have also faced challenges due to overproduction, as they had increased production capacity in anticipation of entering new global markets, only to be confronted with trade restrictions.
The EU has experienced the detrimental effects of inexpensive imports from China in its home industries, such as the photovoltaic solar industry. These imports have significantly impacted European businesses and forced many to shut down. However, if the EU were to impose tariffs on Chinese EV imports, it could adversely affect the sales of brands that produce their EVs in China, including Tesla, Volvo/Polestar, Renault, and BMW.
The European Commission will have 13 months to conduct a thorough investigation and evaluate the potential consequences of implementing tariffs before making a final decision. The possibility of retaliatory tariffs from China, particularly targeting luxury automobiles from Germany, France, and Italy, may pose significant challenges for these companies.
Sources: [source 1, source 2]