Written by Jan Železný
„Global markets are now flooded with cheaper Chinese electric cars. (…) And as we do not accept this from the inside, we do not accept this from the outside. So I can announce today that the Commission is launching an anti-subsidy investigation into electric vehicles coming from China.“ That was one of the main highlights of this year’s State of the Union (SOTEU) delivered by Ursula von der Leyen, President of the European Commission – a statement that raised many eyebrows, angered Beijing, but also put light on cracks in the facade of a joint European attitude towards growing imports of Chinese electric vehicles (EVs).
To many ears, Leyen’s words might sound overly technocratic and unclear, however, their impact could potentially be quite broad and tangible! If the allegations about the misuse of social dumping and state subsidies by Chinese EV makers were found valid, the imports of those Asian carmakers could be potentially hit by EU’s tariffs. Such a punitive move would, of course, partly diminish the main competitive advantage of Chinese brands – their lower prices and affordability for middle and lower-income European customers. All that in times, when those are aiming at the rich European market and making strategies for building a bridgehead for their further expansion in the future! No surprise, the Chinese reacted with strong words – they did so even though the move did not come out of the blue. At least European officials indicated that von der Leyen had raised her concerns openly while talking to Chinese Premier Li Qiang during the G20 summit in New Delphi, India. Valdis Dombrovskis, Executive Vice President of the European Commission for Economy, then commented on his X account (former Twitter) that the EU is “open to competition but not to unfair practices”, and he added Brussels wants to “keep dialogue open, to de-risk, not decouple”. This reference to the EU’s softer stance on economic relations with China, in comparison to the American one, did not soothe Beijing much! The Ministry of Commerce reacted angrily, calling the Commission’s probe blatantly protectionist and aimed at unfair preferring of domestic manufacturers at the expense of the competitive Chinese companies.
However, the Commission’s probe is just a result of a long debate among unnerved European carmakers, who found themselves in a very precarious situation – their underestimating of the electromobility trend has proved costly as they face increased competition from Asian, mainly Chinese, manufacturers not only in overseas markets but quite recently even in Europe – their stronghold and unconquered bastion! Chinese companies (like BYD, Great Wall, XPeng or Nio) slowly but stubbornly continue their expansion into the “Old Continent”, increasing step-by-step their market share which rose from 1 % in 2021 to 2,8 % in this year. The Transport & Environment analysis then expects it to rise even further and reach 9-18 % in 2025, which is a significant and alarming number! Slow and steady evidently wins the race! And the Chinese can be patient!
For many years their companies have been learning their lessons when cooperating with their technologically much more advanced Western peers. Those were forced to create joint ventures and agreed to a certain technological shift in exchange for rights to sell their products in the rapidly growing and almost never-saturated Chinese car market! That gobbet was too tasty for mouth-watering European carmakers to be overlooked! No matter the risks and costs! The growth of sales was the mantra of the time! Nevertheless, Chinese manufacturers soon learned the rules of the game and saw a vacuum in the EV market that they filled very quickly. Not only in their domestic environment but very soon also abroad. They used their competitive advantages in the form of cheap energy and production inputs (China can rely on its own carbon sources of energy or purchase them cheaply from countries in Central Asia, Middle East, or Africa), cheap but efficient labor, and know-how gained from the long years of cooperation with Western competitors. Plus, as European brands argue, together with what they call “social dumping”, there was a generous influx of state subsidies that helped Chinese EV makers to decrease their costs and made them strongly competitive. Based on that they could offer a significantly lower price to European customers! While the average price of the EV made in Europe was 67 607 EUR in the first half of 2023, based on the Jato Dynamics statistics, the Chinese models were sold for 48 581 EUR. A significant impact on this have the activities of formerly British MG, now owned by Chinese SAIC, whose cars constitute ¾ of imports into Europe! However, it is not only about production costs but also about the different philosophies behind it! Unlike Europeans, who understood EVs as a higher range or luxurious segment with big SUVs and sedans, the Chinese focused on the middle and lower range of customers, where they felt a potential for success. Traditional European car makers were caught off-guard.
The above-mentioned cocktail caused a significant panic among European carmakers and started a process of lobbying at the levels of the national governments and the European Union for some kind of counteraction. Especially French companies like Renault or Stellantis had a strong voice and found receptive ears in Macron’s government. The president raised the topic regularly and pushed for tangible action. Therefore, the Commission’s decision was welcomed by the French as one of its results could be a pressure on Chinese makers to move, at least partly, its production facilities into Europe to avoid punitive measures. France is, at the same time, one of the keenest and most strongly interested recipients as Macron strives to rebuild his country’s manufacturing base. However, on the other side of Rhine, the situation is slightly different and the Commission’s decision is seen with a certain kind of fear! Initially, this coalition of car makers calling for some kind of action seemed solid and united, but such a strong move by the EU and harsh Chinese reaction exposed significant cracks in its façade. Germans are evidently nervous about possible punitive actions by Beijing. The reason is clear! Unlike their French colleagues, whose profits are much more centered on Western markets, German carmakers are more global in their reach with China being a key and absolutely indispensable market! For them, there is much more at stake as many moved their main production facilities to China and have changed their policy in recent years. Instead of producing cars in China for Chinese, they leveraged a model of producing cars in China for the global market! Volkswagen (VW) is a prime example! The company is less focused on the European market as it has bigger fish to fry! Witnessing a decrease in its market share in China, it partnered with XPeng one of the biggest EV makers in China, when it bought a 5% stake for 700 million USD. Audi, part of the VW concern, will then cooperate with the biggest Chinese brand SAIC Motor in the development of new luxurious models. VW simply wants its position as the No. 1 seller in China back! The other German brands like Mercedes-Benz or BMW share this attitude.
Nevertheless, this pattern could be potentially endangered now as punitive countermeasures by Beijing against technology giants like Micron show that nobody can feel safe! Germans, therefore, won’t support many of the French radical actions which could undermine their joint effort, even though many experts argue that the Commission’s moves are only about buying more time for Europeans to catch up to the high competition in the EV sector. Furthermore, the elephant in the room, represented by the immense dependence of almost all Western carmakers on the supply of raw materials for batteries and key components of EVs still remains unaddressed! The European carmaking bastion is crumbling… and we are just at the beginning of the whole process of dealing with the Chinese EV manufacturing base!
Jan Železný is a Ph.D. student of International Relations at the Department of Politics and International Relations, University of West Bohemia in Pilsen (Czech Republic). He conducts research on the formation and change in the international order with special attention to the U.S.-China power rivalry in the Indo-Pacific, Sino-Russian cooperation in the Arctic and space, and the issues of global political economy. He also works as a foreign policy special advisor in the Chamber of Deputies (a lower house of the Czech Parliament). His political comments and articles can be found on the Info.cz magazine website.
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