A European investigation into the boom in the Chinese automobile industry
- alarab-kwt
- Sep 20, 2023
- 5 min read
The European Union has launched an investigation into China's electric car sector receiving generous government support that allows it to lower prices and flood global markets.

But the European move angered the Chinese authorities, amid fears that it would cause a tariff war between the two sides in the coming period.
European investigations and accusations
- The European Commission has launched an investigation to assess whether punitive tariffs will be imposed to protect EU producers from imports of cheap Chinese electric cars.
European Commission President Ursula von der Leyen told the European Parliament that global markets are currently being flooded with cheap electric cars, with prices kept artificially low through massive government subsidies.
The anti-subsidy investigation covers battery-powered cars from China, as well as non-Chinese brands that are manufactured in the Asian country, such as Tesla, Renault, and BMW.
The investigation is unusual given that it was brought by the European Commission itself, and not in response to a complaint from an industry player.
- The Commission will have up to 13 months to evaluate whether to impose tariffs higher than the traditional rate of 10% on Chinese cars.
The EU investigation is looking into a wide range of possible unfair subsidies, including prices for raw materials, batteries and even preferential loans and the provision of cheap land.
The European Commission stated that the prices of Chinese electric cars sold in Europe are usually 20% lower than brands made in the European Union.
China's share of electric cars sold in Europe is about 8%, with the European Commission expecting it to reach 15% by 2025.
China responds and threatens
China strongly criticized the European Union's decision, warning that this measure could harm economic relations between the two sides.
- China's Ministry of Commerce said the European investigation represents a "blatant protectionist act" that would disrupt and distort the electric vehicle industry and supply chain, with a potential negative impact on economic and trade relations between China and the bloc.
- China pledged that it will vigorously protect the legitimate rights and interests of Chinese companies in the face of the European Union's protectionist approach
- The Chinese Chamber of Commerce with the European Union said it opposed launching the investigation, noting that the sector's competitive advantage was not due to government subsidies.
Cui Dongshu, Secretary-General of the China Passenger Vehicle Association, said that Chinese electric vehicles exported to Europe are retailing at nearly double the prices in the Chinese market.
- He explained: “China’s exports of electric vehicles are seeing higher volumes not due to government support but the highly competitive Chinese industrial supply chain as a result of strong competition in the domestic market.”
China's rapid rise
Over recent years, China's automobile manufacturing sector has witnessed a rapid renaissance, supported by a combination of support, investment and technological development.
- China is on track to become the largest car exporting country in the world this year, overtaking Japan.
Car exports from China amounted to about 361.6 thousand cars in June, surpassing Japan, which exported 342 thousand vehicles in the same period.
- China exported 2.8 million cars from the beginning of this year until the end of July, an increase of 74% year on year.
This development marks the end of decades of European, American, Japanese and Korean car companies dominating the global market.
- Chinese automobile exports surpassed those of South Korea in 2021, before surpassing Germany the following year, and becoming close to surpassing Japan this year, according to Moody’s data.
UBS expects Chinese cars to control about 33% of the global market by 2030, compared to 17% last year, supported by rising sales of electric vehicles.
Support and investment
China's auto sector has benefited from years of supportive industrial policy and investment from the private sector.
- Chinese companies such as BYD, which focuses on electric cars, have succeeded in outperforming their foreign counterparts, turning to targeting foreign markets.
Some Chinese companies have gained a rising position in the global electric vehicle market, such as BYD, X-Ping, and Nio, with the fact that the former has become the best-selling electric vehicle around the world.
The consulting firm Alex Partners indicated that Chinese government support for electric and hybrid cars amounted to $57 billion between 2016 and 2022.
In 2022, China also ended a generous 11-year support program for the purchase of electric cars, but some local authorities continued to provide aid or tax cuts to attract investments and support consumers.
Last April, Nio's founder warned that Chinese automakers should prepare for the possibility of foreign governments imposing protectionist measures.
The founder of the Chinese company estimated that his company and the rest of the sector's companies in Beijing enjoy a cost advantage of up to 20% compared to competitors such as Tesla, thanks to China's control over supply chains and raw materials.
Kingsmill Bond, senior director of the strategy team at the Rocky Mountain Institute, explained that Chinese producers benefited in 2022 from electric vehicle battery prices of $130 per kilowatt-hour, compared to the global price of $151.
- Paul Jung, an automotive analyst at UBS, stated that the cost of the Chinese BYD Cel car is 15% less than the Tesla Model 3 manufactured in Shanghai, and is considered 35% less than the Volkswagen E car. D3" manufactured in Germany.
But Jung pointed out that the decline in costs does not necessarily reflect Chinese government support, but rather indicates efficient manufacturing, large supplies of basic components, and technological know-how.
While Gabriel Felbermeier, Director of the Austrian Institute for Economic Research, believes that there is sufficient evidence that Beijing supports its auto industry in a way that is not in line with the rules of the World Trade Organization.
The problem of excess capacity
Although Chinese automobile production has risen strongly, sales volumes in the domestic market reached their peak in 2017, with middle class growth slowing and the broader economy weakening.
The Chinese car export boom was contributed to by deep structural problems in the local car industry, amid a state of mismatch between production in factories and local demand for cars.
Industry officials failed to anticipate three major trends: the rapid decline in sales of internal combustion engine vehicles, the strong rise in the popularity of electric vehicles, and the decline in the need to own a private car with the ride-hailing boom.
Bill Russo, former president of Chrysler in China, said that the result was huge excess capacity in the number of cars produced in Chinese factories, noting that China has a surplus of 25 million unused vehicles.
Local car production companies, such as “Chery”, “BYD”, “Geely”, and “Changan”, and foreign ones, including “Tesla”, “Ford”, and “Nissan”, were affected by the problem of excess capacity, which prompted them to redirect their factories in China towards... Export markets.
Tariff war fears
Observers fear that the European Union imposing customs tariffs on Chinese electric cars threatens a similar reaction from Beijing against vehicles imported from the bloc.
Eurasia Group analysts believe that the European Union's willingness to restrict Chinese exports of electric cars highlights the growing protectionist trends in Europe, as the bloc seeks to compete with China and the United States on green and digital transformations.
The German Automobile Association (FDA) believes that the European Union must take into account the possible reaction from China, with the need to focus on creating the necessary conditions for the success of European players, which includes reducing electricity prices and reducing bureaucratic obstacles.
An official at one of the major German car manufacturers said in statements to the newspaper "Politico" that French companies are behind the European Commission's push to launch an investigation against China, expressing his belief that it is not only targeting Beijing but also German competitors.
Simone Tagliapietra, an analyst at the Brugel Center, said that Europe needs an active industrial policy to quickly develop the competitiveness of the electric car industry.
Sources: Figures - European Commission - Financial Times - Reuters - Deutsche Welle - South China Morning Post - Politico
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