EU investigates ‘flood’ of Chinese electric cars and weighs tariffs

BRUSSELS (Reuters) – The European Commission launched an investigation on Wednesday into whether to impose punitive tariffs to protect European Union producers from imports of cheap Chinese electric cars that it says benefit from government subsidies.

“Global markets are now full of cheap electric cars. Their prices are artificially low through huge government subsidies,” European Commission President Ursula von der Leyen said in her annual speech to the bloc’s parliament, which many in Brussels see as a promotion. Reappointed for a second term.

The Commission will have up to 13 months to evaluate whether to impose higher tariffs than the EU standard of 10% on cars in the most high-profile case against China since an EU investigation into Chinese solar panels averted a trade war a decade ago.

The anti-subsidy investigation covers battery-powered cars from China, and therefore also includes non-Chinese brands made there, such as Tesla, Renault and BMW. It is also unusual because it was introduced by the European Commission itself, rather than in response to an industry complaint.

Tensions between China and the European Union have increased, partly due to Beijing’s close relations with Moscow after the Russian invasion of Ukraine. The European Union seeks to reduce its dependence on the world No. 1. 2 economy, especially for the materials and products needed for the green transition.

European automakers have realized that they have a big battle ahead to produce low-cost electric cars and erase China’s lead in developing cheaper models.

Chinese electric vehicle makers, from market leader BYD (002594.SZ) to smaller rivals Xpeng (9868.HK) and Nio (9866.HK), are stepping up efforts to expand overseas as competition intensifies at home and domestic growth declines. China’s auto exports rose 31% in August after a 63% jump in July, data from the China Passenger Car Association showed.

The average retail price of a Chinese brand electric vehicle in Germany was 29% lower than the average of non-Chinese electric vehicle models, without counting incentives or discounts, according to Jato Dynamics, while it was 32% lower in France. And 38% less in Europe. United kingdom.

The European Commission said that China’s share of electric cars sold in Europe has risen to 8% and could reach 15% in 2025, noting that prices are usually 20% lower than models made in the European Union. Popular Chinese models exported to Europe include SAIC’s MG and Geely’s Volvo.

Shares of Chinese electric vehicle producers fell after the EU announcement. BYD shares, which were trading 4.5% higher before the news, closed down 2.8%, while Nio fell 1% and Xpeng fell 2.5%.

Shares of European automakers — Volkswagen (VOWG_p.DE), BMW (BMWG.DE), Mercedes-Benz (MBGn.DE) and Stellantis (STLAM.MI) — got brief, early support on the news before most of the gains were erased. By 1115 GMT, Volkswagen shares rose 0.3 percent, while Stellantis shares fell 0.4 percent.

Grinding gears

The influx of cheaper Chinese electric cars has already prompted some European automakers to take action. Renault (RENA.PA) announced in July that it aims to reduce production costs for its electric models by 40%.

Like other electric car makers, France’s Renault is also facing increasing pressure from US rival Tesla, which has cut prices several times this year even as that has eroded its margins.

But the German automobile association VDA said the EU should take into account the potential backlash from China to such an investigation.

The VDA said policymakers should focus on creating the conditions necessary for European players to succeed on their home turf – from lowering electricity prices to reducing bureaucratic hurdles.

The German auto industry depends on China for a large percentage of its sales revenues, and has long called for keeping the doors of trade open.

At the same time, von der Leyen stressed the importance of electric cars for the EU’s ambitious environmental goals.

“Europe is open to competition. Not to a race to the bottom,” she told the European Parliament, noting that the European Union does not want to repeat the experience of the solar panel industry, which was destroyed by cheap Chinese imports.

“This is the beginning of a long journey,” said analyst Simone Tagliapietra of Bruegel Research. “It could eventually work out, but this must go in parallel with an active industrial policy to ensure that EU industry rapidly develops its competitiveness.”

Chinese government support for electric and hybrid vehicles reached $57 billion from 2016 to 2022, according to consulting firm AlixPartners, helping China become the world’s largest electric vehicle producer and overtaking Japan as the largest vehicle exporter in the first quarter of this year.

China ended a generous 11-year subsidy program for electric vehicle purchases in 2022, but some local authorities have continued to offer aid or tax cuts to attract investment, as well as support for consumers.

The Nio founder warned in April that Chinese electric car makers should prepare for the possibility of foreign governments imposing protectionist policies.

He estimated that his company and its Chinese counterparts enjoy a cost advantage of up to 20% over rivals like Tesla thanks to China’s grip on the supply chain and raw materials.

In 2022, Chinese producers benefited from electric vehicle battery prices of $130 per kilowatt-hour versus a global price of $151, said Kingsmill Bond, senior director on the strategy team at the Rocky Mountain Institute.

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