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EU Launches Anti-Subsidy Probe into Tesla's China Exports

Updated: Dec 30, 2023

[Edited] The European Commission has initiated an investigation into the influx of Chinese electric cars and is considering imposing tariffs to protect European Union (EU) producers.

Tesla's Model 3
Credits: REUTERS

The Commission claims that these cheaper Chinese imports are benefiting from state subsidies, which artificially keep their prices low. European Commission President Ursula von der Leyen addressed the issue in her annual address to the bloc's parliament, stating, "Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies."


The investigation, which could last up to 13 months, will assess whether to impose tariffs above the standard 10% EU rate for cars. This case against China is the highest-profile investigation since the EU narrowly avoided a trade war with China over solar panels a decade ago. The investigation covers battery-powered cars from China, including non-Chinese brands produced there such as Tesla, Renault, and BMW. Notably, this investigation is being brought by the European Commission itself, rather than in response to an industry complaint.


The Chinese Chamber of Commerce to the EU expressed concern and opposition to the investigation's launch, asserting that the sector's competitive advantage is not due to subsidies. It urged the EU to objectively evaluate Chinese electric vehicles. Tensions between China and the EU have been growing, partly due to Beijing's closer ties with Moscow following Russia's invasion of Ukraine. The EU aims to reduce its reliance on China, particularly for materials and products needed for its green transition.


European carmakers are facing the challenge of producing lower-cost electric vehicles to compete with China's lead in developing cheaper models. Chinese EV makers, including market-leader BYD, Xpeng, and Nio, are intensifying efforts to expand overseas as competition at home increases and domestic growth slows. In August, China's auto exports surged by 31%. The European Commission reported that China's share of EVs sold in Europe has risen to 8% and could reach 15% by 2025, with prices typically 20% lower than EU-made models. Popular Chinese models exported to Europe include SAIC's MG and Geely's Volvo.


Shares of Chinese EV producers fell after the EU's announcement. BYD shares, which were trading 4.5% higher before the news, closed down 2.8%, while Nio fell 1% and Xpeng dropped 2.5%. European carmakers, including Volkswagen, BMW, Mercedes Benz, and Stellantis, initially experienced a brief boost in their shares before erasing much of the gains.


The influx of cheaper Chinese electric vehicles has prompted some European carmakers to take action. Renault announced in July that it aims to reduce production costs for its electric models by 40%. Additionally, European carmakers face increased pressure from U.S. rival Tesla, which has lowered prices multiple times this year, impacting its margins.


The EU must consider a possible backlash from China and focus on creating conditions for European players to succeed, according to Germany's VDA auto association. Germany's car industry heavily relies on China for a significant portion of its sales revenue and advocates for keeping trade doors open. Von der Leyen emphasized the importance of electric vehicles to the EU's environmental objectives, stating that Europe is open to competition but not for a race to the bottom.


The investigation will examine a broad range of possible unfair subsidies, including prices for raw materials and batteries, preferential lending, and cheap provision of land. Chinese EV makers were warned in April to prepare for the possibility of foreign governments imposing protectionist policies. They enjoy a cost advantage of up to 20% over rivals like Tesla due to China's control over the supply chain and raw materials.


In 2022, Chinese producers benefited from EV battery prices of $130 per kilowatt-hour, compared to the global price of $151, according to Kingsmill Bond, a senior principal at the Rocky Mountain Institute.

 
  • The EU launches an investigation into Chinese electric car imports and considers imposing tariffs.

  • European carmakers face the challenge of producing lower-cost electric vehicles to compete with China.

  • Chinese EV makers are expanding overseas as competition intensifies at home.


Source: REUTERS

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