The European Union (EU) has announced an investigation into Chinese electric vehicle (EV) subsidies amid concerns about their impact on the EU’s domestic auto industry. The probe comes as the EU seeks to address what it considers to be unfair trade practices and protect its own industries from distortion. European Commission President Ursula von der Leyen highlighted the flood of cheaper Chinese electric cars in global markets and attributed this to “huge state subsidies” that are artificially keeping prices low and distorting the European market.
While the EU has aligned itself more closely with the US in its approach to China, division remains within the bloc over how forcefully it should respond to trade frictions. Some member states, like France, have raised concerns about US subsidies to clean technology companies. However, the EU remains open to competition but not unfair practices, according to Valdis Dombrovskis, Europe’s top trade official.
China’s EV manufacturers, such as BYD, XPeng, and NIO, have been able to develop competitive vehicles at a lower cost than their Western competitors in their domestic market. According to a recent report by UBS, BYD is expected to have a long-term cost advantage of around 25% over its Western rivals. Now, analysts believe that these Chinese EV makers could start flooding European markets with models priced significantly lower than those from European automakers.
It remains to be seen if the Chinese EV manufacturers can maintain their cost advantages once they set up manufacturing in Europe, as some of them have expressed interest in doing. European automakers, especially Germany’s Volkswagen, BMW, and Mercedes-Benz, have been active in China for many years. However, the Chinese government’s industrial policy aimed at promoting the EV industry has given homegrown Chinese manufacturers an edge, creating an unfair advantage through subsidies and distorting global competition.
The EU’s antisubsidy investigation does not necessarily result in the imposition of tariffs. The investigation could lead to provisional tariffs, continued investigation without tariffs, or dropping the matter altogether. The EU aims to keep dialogue open with China and address unfair practices while promoting fair competition in the global market.
Sources:
– The Wall Street Journal