| By Linyi Zheng |
Investigations and Political Interests Pave the Road For Future EV Car Economics
In October 2023, the European Commission, the executive branch of the European Union, launched an investigation into Chinese automobile manufacturers such as BYD, Geely, and SAIC. The main objective of the Commission’s investigation is to determine whether punitive tariffs should be imposed on these manufacturers for allegedly benefiting from Chinese state subsidies, which may have given them an unfair advantage over European electric vehicle manufacturers. The European Commission is particularly concerned about the impact of Chinese-made electric vehicles on the EU’s electric vehicle market.
Concerns Over Unfair Competition: Impact on EU’s Electric Vehicle Market
Chinese-made electric vehicles have become increasingly popular in the European Union (EU) market due to their lower prices. These vehicles are reported to cost 20% less than their counterparts in the EU, making them an attractive option for European consumers who are looking for affordable electric vehicles. However, this has led to concerns in Europe that Chinese automotive companies are benefiting from state aid, which has helped them gain a competitive edge in the market. Chinese electric vehicles hold an 8% share of the EU’s electric vehicle market, and this share could potentially rise to 15% by 2025. As a result, the European Commission is keen to ensure that European electric vehicle manufacturers are not put at a disadvantage due to unfair competition from Chinese manufacturers.
The EU’s Investigation: Allegations and Explanations
The European Commission has launched an investigation into the competitiveness of the Chinese electric vehicle market, which has created tension between China and the EU. According to the Financial Times, Chinese automaker BYD has denied the allegations made by the European Union that the success of Chinese automotive companies is due to state aid. BYD argues that their success is due to possessing unique and advanced technology, not subsidies.
Tariffs and Trade Tensions — and a Potential Shared Solution
The EU’s investigation into the Chinese electric vehicle market is expected to lead to higher tariffs, which China sees as protectionist measures. The Chinese ambassador to Europe has called this action “unfair,” causing further tension between the two trading partners.
However, BYD has responded by stating that higher tariffs may actually have a positive effect on their business. They believe that car manufacturers may increase the planned production capacity of their new electric vehicle factories in Hungary to reduce the number of imported cars. BYD expects to start producing cars at this factory by the end of next year, despite only announcing the project in December.
The transition from gas-powered cars to EVs and the corresponding construction of new car factories mirrors the past transition from gas-guzzling large American cars to more fuel-efficient Japanese car models. In the early 1980s in the US, Japanese car companies Nissan and Toyota were able to get around US import tariffs by building factories in the US in 1983 and 1986. This business model enabled Japanese companies to avoid tariffs while gaining local support in the US. More local jobs for US auto workers led to more local support from US voters and politicians. China’s moves to start EV production in Europe will likely have similar success, expanding Chinese market access while helping create jobs in Europe.
Driving Toward New Norms in an Evolving Industry
The growing popularity of Chinese-made electric vehicles in Europe has led to tensions between Beijing and Brussels as Chinese auto exports soar globally. The EU’s investigation into the competitiveness of the Chinese electric vehicle market is expected to have implications for the future of the automotive industry in Europe. However, as the inevitable transition to EV technology accelerates, automakers must adapt to stay competitive. Legacy car companies can’t rely on tariffs and similar protectionist policies to shield them from BYD, Tesla, and other automobile companies that shifted their own EV innovation into a higher gear.
Photo Credit: BYD
