On Wednesday, the European Commission started looking into whether to impose punitive tariffs to shield its manufacturers from imports of less expensive Chinese electric vehicles, which it claims receive state subsidies.

The following are the key queries surrounding the action, which on Thursday caused a decline in shares of Chinese EV manufacturers:

How Much Has It Grown? Why Export To Europe?

Their expansion into other markets has been largely fueled by China’s weakening demand, which has worsened overcapacity.

According to Bill Russo, CEO of Shanghai-based advising company Automobility, China would have excess car capacity for nearly 10 million vehicles annually by 2022, which is equal to two-thirds of total North American production.

Due to the rigorous emissions regulations in the EU and Beijing’s generally amicable economic relations with Washington, as opposed to the escalating tensions with the US, Europe has emerged as a major export market for Chinese automakers.

According to customs data, the number of Chinese new energy vehicle shipments to the EU increased by 361% from 2021 and by 112% over the same period in 2023.

According to the European Commission, China now accounts for 8% of EVs sold in Europe and might account for 15% by 2025.

Why Are Evs Made in China Cheaper?

China is the country that produces EVs the cheapest.

That is mostly attributable to Beijing’s ten-year-old incentive and subsidy-based industry development strategy, which allowed China to dominate the global EV market and have control of the supply chain, which included the supply of raw materials. 

According to the European Commission, EVs built in China are typically a fifth less expensive than those made in the EU.

The strategy has also given rise to titans of the industry like CATL, the largest manufacturer of EV batteries in the world, and BYD, which this year overtook Volkswagen as the most popular automaker in China.

China has attracted global enterprises to manufacture there due to its lower costs and advantageous supply chains.

The most well-known of these is Tesla, whose massive plant in Shanghai produced more than 700,000 cars in 2022, or half of the entire output of the American manufacturer. BMW and Renault also produce automobiles in China for export.

Who Is the Subject of the EU’s Investigation?

The EU’s anti-subsidy probe encompasses both Chinese and non-Chinese manufacturers because it relates to battery-powered automobiles from China.

According to a report by the U.S. think tank Centre for Strategic and International Studies, Tesla is the only exporter with a significant market share, accounting for 40% of China’s EV shipments between January and April.

MG and Volvo, both popular Chinese brands that are exported to Europe, are produced by state-owned manufacturer SAIC.

Additionally, businesses including market leader BYD, Nio, and Xpeng have begun expanding into European nations like the Netherlands and Denmark.

Which Subsidies Have Been Dispatched?

According to experts AlixPartners, China’s governmental subsidies for electric and hybrid vehicles will amount to $57 billion between 2016 and 2022.

The most well-known EV subsidy initiative in China aims to increase sales. The subsidy, which was paid to the automaker at the time of purchase, started in 2009 and was steadily reduced until it was eliminated last year.

According to an estimate by China Merchants Bank International, it spent close to $15 billion to promote EV purchases through 2021.

China launched a package of tax benefits in June totalling 520 billion yuan ($72 billion) spread over four years in an effort to increase sales of EVs and other environmentally friendly vehicles.

Many municipal governments still provide additional grants or tax breaks in addition to consumer subsidies to entice investment in manufacturing. Due to the recent slowdown in the economy, these have increased.

According to the EU, its probe focuses on a wide variety of potential unfair subsidies, from the cost of batteries and raw materials to preferential lending or the low cost of land.

(Adapted from Reuters.com)