The European Commission, the executive arm of the European Union, launched an investigation Wednesday into subsidies given to electric vehicle (EV) makers in China, Reuters reports.
In her annual State of the Union address to the European Parliament in Strasbourg, European Commission President Ursula von der Leyen confirmed the investigation and said that “Europe is open to competition but not for a race to the bottom.”
The president believed that prices of EVs in China were "artificially low" due to huge state subsidies, which was unfair and distorted the market.
"We do not accept this distortion from inside our market, we do not accept this from the outside,” she added.
As the automotive sector pivots towards electrification, Chinese EV firms, which possess a distinct supply chain advantage, are targeting overseas markets, with Europe emerging as a prime focus.
This week, Warren Buffet-endorsed BYD unveiled its Seal electric sedan for the European market. Additionally, Hangzhou-based Leapmotor announced its SUV's European debut next year. Xpeng, having already forayed into markets in Norway, Sweden, Denmark, and the Netherlands, plans a German launch in 2024. Nio made its European entry in Norway in 2021, followed by Germany, the Netherlands, Denmark, and Sweden in 2022.
According to the Commission, China's share of EVs sold in Europe has risen to 8% and may reach 15% in 2025. Popular Chinese models exported to Europe include SAIC MG and Geely Volvo.
It's worth noting that the investigation isn't limited to Chinese brands but extends to all battery-powered cars manufactured in China. Tesla, for instance, exports EVs from its Shanghai plant to Europe.
The Commission's investigation, expected to last up to 13 months, will determine if tariffs beyond the standard 10% EU rate for cars should be imposed.
However, the EU remains divided on this issue. Politico reported that while the French government has been advocating for an anti-dumping probe against emerging Chinese EV manufacturers for months, Germany, the continent's leading car producer, resists such measures. The latter's significant market exposure in China makes it vulnerable to potential trade conflicts.
Given that EU countries themselves have implemented preferential policies or subsidies for the EV industry, the probe into made-in-China EVs may seem somewhat biased.
For instance, France offered incentives worth more than 1 billion euros ($1.1 billion) to land EV battery maker ProLogium, and provided about 840 million euros in subsidies, including funds for research and development, for another EV battery maker Automotive Cells Company (ACC).
ACC is set to establish two similar plants in Germany and Italy, backed by public funds amounting to 437 million euros and 370 million euros, as stated by the respective governments.
China’s annual vehicle exports, which surpassed those of South Korea in 2021 and Germany in 2022, are now on track to beat Japan’s this year, according to Moody’s data.