EU Launches Anti-Subsidy Investigation into Chinese Electric Vehicles

The European Commission has taken a significant step in addressing the impact of state subsidies on the electric vehicle (EV) market. European Commission President Ursula von der Leyen announced the launch of an anti-subsidy investigation into Chinese electric vehicles, which aims to assess the potential harm caused by artificially low prices driven by substantial state subsidies.

The Motivation Behind the Investigation

In her annual address to the European Parliament, President von der Leyen highlighted the flooding of global markets with cheaper electric cars and the resulting threat to fair competition. She emphasized that the artificially low prices, primarily the result of substantial state subsidies, could undermine the European market. Unusually, the investigation is a proactive measure taken by the European Commission itself, rather than a response to industry complaints.

“Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies, […] So I can announce today that the Commission is launching an anti-subsidy investigation into electric vehicles coming from China. Europe is open for competition. Not for a race to the bottom.” – Ursula Von Der Leyen,

The investigation will cover not only Chinese brands, but also non-Chinese brands manufactured in China, including Tesla, Renault, and BMW. The European Commission will have up to 13 months to evaluate whether to impose tariffs exceeding the standard 10% EU rate for cars.

Chinese EVs in Europe

The dominance of Chinese electric vehicle manufacturers, such as BYD, Xpeng, and Nio, in the domestic market has prompted these companies to expand their operations overseas. China’s auto exports surged by 31% in August, following a 63% increase in July, according to data from the China Passenger Car Association (CPCA). 

These exports have pushed Chinese car production to increase considerably over the past few years.  NIO, for one, delivered a total of 94,352 vehicles globally between January to August 2023; accounting for almost 25% of all vehicles sold by the brand, ever. 

According to some analysts, the average retail price of a Chinese-brand electric car in Europe was between 29% and 38% lower than that of non-Chinese EV models; indicating the impact of Chinese subsidies on the pricing dynamics of the European EV market.

Political and Industry Support

President von der Leyen’s announcement garnered support from various political circles and European industry representatives. Manfred Weber, Chairman of the EPP Group, expressed the need to prevent Chinese electric vehicles from benefiting from European climate policies. French Finance Minister Bruno Le Maire welcomed the investigation, stating that if Chinese subsidies do not conform to international trade rules, Europe must respond to protect its economic interests.

The European Automobile Manufacturers Association (ACEA) also expressed support for the investigation. Sigrid de Vries, the Director General of ACEA, stated that the European industry would study the details and participate in the inquiry as an interested party. De Vries noted, however, that Chinese automakers have been strong competitors to European brands, sating that “China’s apparent advantage and cost-competitive imports are already impacting European auto makers’ domestic market share, with a massive surge in electric vehicle imports in recent years” Adding that “at the same time, the US Inflation Reduction Act (IRA) is also a game-changer in the electric vehicle value chain. Von der Leyen’s announcement is a positive signal that the European Commission is recognising the increasingly asymmetric situation our industry is faced with, and is giving urgent consideration to distorted competition in our sector.”

Skepticism and Concerns from Within

While many support the investigation, some have raised concerns. Germany’s VDA Automotive Industry Association emphasized the importance of free, fair, and rule-based trade with third countries. The association called for a causal quantification of the damage caused by subsidies and highlighted the need to consider the community interest and potential backlash from China. They also stressed that an anti-subsidy investigation alone would not solve the challenges faced by the European automotive landscape, emphasizing the necessity of creating favorable framework conditions to ensure a successful transformation.

Matthias Schmidt, a European auto market analyst, noted China’s long-term planning and foresight in the electric vehicle market. He highlighted China’s ability to build economies of scale in the domestic market and its advantages in terms of electromobility and the overall value chain. Schmidt emphasized that Chinese manufacturers are not engaging in price dumping but rather offering competitive prices with better value for money compared to European models.

More poignantly, however, Schmidt casted doubt on effectiveness of tariffs, noting: “If you look at China prices compared to European prices, despite the associated tariffs (10%) and shipping costs etc, it doesn’t look like they are silly enough to price dump here.”

“They are so far ahead, see the new Geely SEA based baby BEV Volvo coming in with a 15-20% profit margin, they can easily soak up those tariffs and offer a profitable vehicle here. Instead of price dumping they are offering a close to parity prices vehicle as a European model but with a far better trim and value for money and are starting to win the battle that way around for now.”

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Next steps

The European Commission’s anti-subsidy investigation into Chinese electric vehicles marks a significant step towards addressing the impact of alleged state subsidies on competition in the EV market. The investigation’s findings ultimately will determine whether tariffs above the standard EU rate will be imposed.

If the Commission does move forward, however, it will have to deal with opposition from within the Union and abroad. Similarly, it is possible that the Commission will have to appease concerns that EU subsidies on Chinese EVs may lead to tit-for-tat retaliation on high-value European exports.