How will the EU’s investigation into Chinese electric vehicle subsidies work?

European Commission President Ursula von der Leyen on Wednesday (13 September) announced an investigation into Chinese subsidies for electrical vehicles (EVs), a move that could lead to countervailing duties on EVs from China within nine months.

“Global markets are now flooded with cheaper Chinese electric cars and their price is kept artificially low by huge state subsidies,” von der Leyen said during her State of the European Union speech on Wednesday, claiming that this distorted the European market.

According to an EU official, Chinese electric car producers are quickly growing their market share in the European EV market. Having attained 8% of the EU’s electric vehicle market in 2022, the EU official expects Chinese brands to reach a market share of 15% by 2025.

According to the official, Chinese subsidies mean that Chinese brands can offer their electric cars at a price that is 20% lower than European brands can.

Monthly trade data for the past five years show a rapid increase in Chinese EV exports to the EU, while trade in the other direction stayed very subdued.

Von der Leyen announced that the Commission would start an investigation into the Chinese EV subsidies. Such investigations are usually only launched if the EU executive is fairly certain there is enough evidence to support them, suggesting that the Commission is convinced that European producers are hurt by an unfair amount of subsidies dished out to Chinese EV producers.

According to an EU Commission spokesperson, the investigation is started ‘ex officio’, which means that the EU Commission has not initiated it in reaction to a formal request by a member state or by a European company. However, the French government has reportedly been pushing for such a move over the past weeks and months.

Countervailing duties could come in less than a year

An anti-subsidy investigation based on the EU’s anti-subsidy regulation usually takes 13 months.

During this time, the EU Commission will ask affected companies as well as the Chinese government to deliver information on the issue, though Beijing’s track record is less than shining when it comes to transparency in how it subsidises companies.

Once the investigation starts, the Commission has up to nine months to disclose its provisional findings and publish the provisional measures it decides to apply.

After another four months at the latest, the Commission will have to publish the definitive measures it wants to take.

These measures would typically come in the form of countervailing duties that are calculated on the basis of the damage that EU companies are deemed to suffer as a result of the Chinese subsidies. Given that the Commission currently estimates the price difference between Chinese and European electric cars at around 20%, this could be a first indicator of how high a future countervailing duty might be.

“Positive signal” for European automakers

Reactions have been mixed so far.

Green NGO Transport & Environment, which has long campaigned for greater uptake of electric vehicles across the EU, welcomed the Commission President’s announcement.

“Europe needs an affordable and accessible supply of EVs – but only within fair global competition,” said T&E’s Julia Poliscanova. “Where unfair subsidies are found, the EU should look to its own industrial policy and trade defence mechanisms to ensure European manufacturing has a fair chance.”

ACEA, a trade group representing Europe-based car makers, hailed the announcement that the European Commission will launch an anti-subsidy investigation into Chinese electric vehicles as a “positive signal” that the European Commission is recognising the “distorted competition” faced by the sector.

The positive reaction from the Brussels-based automotive lobby group, which represents carmakers including Renault, Volkswagen, and Jaguar Land Rover, was in contrast to a statement released by German counterpart VDA.

Criticism from Germany and China

VDA, which represents the interests of German carmakers, took a more sober tone, warning that “possible counter-reactions from China must also be taken into account”.

Indeed, China is unlikely to be happy about the Commission President’s announcement.

The Chinese Chamber of Commerce to the EU, for example, expressed “its strong concern and opposition” to the announcement, arguing that the increased market share of Chinese EV producers was due to a “substantial industrial edge” that they had developed in the domestic and internal market and not, as the Commission president implied, due to the state subsidies.

There is a risk that China will retaliate with its own trade restrictions, which might affect German industry most, as it is the most exposed to the Chinese market. Moreover, it could lead to less affordable electric vehicles, which would run counter to the EU’s goal of decarbonising car traffic.

In her speech, von der Leyen called for fair competition instead of “a race to the bottom” – but she might get a race in another direction, towards ever higher tariffs.

China slowdown 'mostly positive' for EU economy, says Bruegel economist

China’s economic slowdown could help reduce inflation in Europe, while economic loss felt by EU companies due to reduced exports would likely be felt anyway as China pivots towards more self-reliance, economist Alicia García-Herrero told EURACTIV in an interview.

[Edited by Nathalie Weatherald]

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