EU Commission President Ursula von der Leyen’s statement on Wednesday that the EU is to launch an investigation into China’s state support for makers of electric vehicles was brushed away by the Chinese government as ‘naked protectionist behavior.’ One that von der Leyen’s home car industry fears will backfire in a Chinese market they desperately need.
“Huge state subsidies artificially reduce the price of Chinese electric cars, and this is distorting our market,” von der Leyen said, undoubtedly pushed behind the scenes by the French. But Chinese EVs are at least twice as expensive in Europe as in their homeland. And a European, compact €25 000 EV with a 4% profit margin should be feasible and able to compete, says Transport & Environment in a recent study.
China is not happy with the EU’s intention to stem the tide of Chinese cars, a spokesman for the Commerce Ministry confirmed. “China believes that the EU’s proposed investigative measures are to protect its own industry in the name of ‘fair competition,’ which is naked protectionist behavior that will seriously disrupt and distort the global automotive industry supply chain,” he said.
Analysts in China replied that the EU’s move was expected. In April, the French car industry called for extra tariffs on Chinese cars, and rumors of upcoming anti-subsidy investigations were already surfacing in July. Still, they believe the actual impact will be relatively small, and the prospects for Chinese car companies to enter international markets remain intact.
Double as expensive as in China
“The EU has cited the low price of Chinese EVs as a reason for the investigation, but in fact, Chinese cars exported to Europe generally cost almost double the domestic price, Sinolink Securities told CNEVPost.
BYD, China’s biggest EV maker, sells the Atto 3 – the first model it shipped to Europe – in its homeland at 139 000 yuan, some €17 900. It’s priced at €38 740 in Belgium, more than double. That’s already with hefty import taxes included, as is the case for other import cars, like Tesla. So what is Europe going to do? Tax only the Chinese even more?
The Germans see the storm coming and are scared of upsetting the Chinese as the Azian market, along with the American, is crucial for them as the world’s biggest auto market they need.
No punitive customs
According to the German national press agency DPA, the German Chamber of Industry and Commerce (DIHK) noted that Chinese market distortions were a problem for Europe that needed to be addressed, “but if possible not by our own excessive subsidies or new punitive customs levies as a consequence of drawn-out dumping procedures.”
China’s car exports to Europe are currently modest, the Chinese say. In the first half of this year, some 89 000 Chinese cars were sold in the EU, only 4.8 percent of China’s total car export of 1.85 million units. “The outlook for China’s car entry into international markets is unchanged, with exports still set to rise significantly in 2024-2025”, Sinolink Securities said.
Building factories in Europe
One way to avoid possible tax barriers is for the Chinese to build factories on the Old Continent. Isn’t that what European carmakers and Tesla have been doing for years already in China?
Creating joint ventures and exporting their technology to China? On the other hand, don’t Chinese cars use much of the same Western tech as European cars, delivered by worldwide automotive suppliers?
Now, the reverse tendency is surfacing. SAIC is said to be looking for a European production location. And in the backyard of the German premium carmakers, at the IAA in Münich, the boss of BYD Europe announced that the final designation of a local assembly plant in the EU is near.
“If you want to be successful in a market in the long term, you need localization,” said Shu to German newspaper Handelsblatt. “This also applies to having your production. We are confident that we will have news on this in Europe by the end of the year.”
Resting on its laurels too long
It looks like the European car industry has been resting on its laurels way too long, confident the combustion engine they excelled in was there for decades to come. Meanwhile, the Chinese government injected billions into its electric car industry, securing access to all raw materials needed and leapfrogging the competition.
Although the Chinese government directly controls several companies, direct state subsidies to the car industry are believed to be something of the past. Europe is now pumping billions into creating a local battery industry in an attempt to catch up with China which provides almost all the EV batteries we’re using today.
The European Parliament just voted on the Critical Raw Materials Act that is to ensure Europe is going to have its own resources for 50% of the total needed by 2030. The need for materials like lithium is expected to grow by 2050 to a volume of 21 times the volume of 2020.
The Chinese might have a point saying that state subsidies for EV purchases have been eliminated in China, in contrast to the €3 000 for 6 000 subsidies still available in several European countries.