This story is the second part of a three-part series discussing the EU’s anti-subsidy inquiry into electric vehicle imports from China. The first part delves into the details of the inquiry and its initial impact on Chinese car manufacturers. Read it here.
Regarding the European Union’s initiation of an anti-subsidy inquiry against the import of Chinese electric vehicles, viewpoints in the industry are not fully aligned. For one, legal experts consider anti-subsidy measures a regular trade policy tool, and the initiation of an investigation to be standard practice.
A senior scholar well-versed in the EU’s anti-subsidy regulations told Caijing Eleven that such anti-subsidy investigations that target a specific country or industry have occurred before in the past, typically during major price distortions in competition. Therefore, the EU’s actions in this case may not necessarily signify new geopolitical changes and should be interpreted from an economic and trade standpoint.
Moreover, it’s important to note that the initiation of the procedure does not imply a final decision has been made. China is not the only country offering subsidies for new energy cars, and as long as China’s subsidy policies are found to be reasonable and comparable to EU subsidies, it will be challenging to substantiate the allegations.
It’s also worth highlighting that the inquiry doesn’t solely aim to impose sanctions. During the investigation process, a significant objective is to clarify the status and intensity of Chinese EV subsidies in various countries. Additionally, the anti-subsidy investigation allows room for defense and is a standard procedure in international trade.
Long-term impact of the inquiry
As of now, Chinese car companies have limited dependence on the EU market. Even if the anti-subsidy investigation finds them liable, it is unlikely to have a significant impact on their business operations. However, in the coming years, this inquiry could adversely affect their efforts to expand their market share in Europe, potentially slowing down their entry into the European market. Speed is of the essence for European car companies, as they must accelerate their progress and commence the production of the new generation of intelligent EVs as soon as possible to compete with Chinese new energy vehicles.
The next two to three years represent a critical window. During this time, the market share that Chinese car companies can capture will determine the success or failure of Chinese automotive brands in the European market. The anti-subsidy inquiry is one of the few tools that the EU has to address the competition from Chinese car companies during this crucial window.
In the next three years, Chinese car companies won’t be able to establish production capacity in Europe. If they want to expand their market share, they will have to rely on imports from China. Even if local production becomes an option, at current costs, it may not be as cost-effective as importing directly from China.
During this year’s International Motor Show Germany, a report published by UBS on the BYD Seal (Atto 4) indicated that producing vehicles similar to the BYD Han locally in Europe would result in higher costs than manufacturing them in China. This remains true even after factoring in shipping costs and tariffs. For instance, Volkswagen’s ID series vehicles, imported directly from China to Europe by dealers, are priced one-third lower than locally manufactured Volkswagen ID vehicles, even when considering shipping costs and tariffs.
In this cost situation where European car companies lack competitive advantages, anti-subsidy measures, including the ongoing inquiry, are almost the only choice for European car companies to respond to competition from their Chinese counterparts before introducing their next generation of new energy vehicles to the market. If Chinese car companies are subjected to anti-subsidy taxes, it may accelerate the pace of Chinese car companies establishing production capacity in Europe, as they cannot afford to give up the European market.
China introduced subsidies earlier, but not at a higher intensity
It’s essential to consider that according to the EU’s regulation on foreign subsidies, the anti-subsidy investigation against Chinese EVs can be retroactively applied to 2018. China’s new energy car subsidies have been gradually decreasing since 2018, with significant changes in the subsidy policy. Subsidies for low-range vehicles were reduced, while those for vehicles with ranges exceeding 400 kilometers saw slight increases.
In 2019, subsidies began to decrease significantly, with the maximum subsidy amount reduced from RMB 5,000 (USD 683) to RMB 2,500 (USD 341), and the subsidy threshold significantly increased to a range of over 250 kilometers. From 2019 onwards, China’s new energy vehicle subsidies began to decrease rapidly, leading to a decrease in new energy vehicle sales in China in 2019.
From 2020 to 2022, China’s subsidies decreased by 30% each year, and starting from January 1, 2023, the subsidy policy was completely terminated, with only the policy of exempting new energy vehicles from the purchase tax remaining. In contrast, in the US, the Inflation Reduction Act offers a maximum subsidy of up to USD 7,500 per vehicle. European countries, starting from 2020, have increased their subsidies for EVs, with Germany providing over EUR 6,000 (USD 6,336) per vehicle, France offering EUR 5,000 (USD 5,280), and Italy providing EUR 3,000 (USD 3,168) (with an additional EUR 2,000, equivalent to USD 2,112, for trade-ins of old vehicles).
Based on historical data and current data, both individual vehicle subsidies and total subsidy amounts in China are not relatively high. In terms of total subsidies, data from China’s Ministry of Industry and Information Technology shows that from 2010 to the termination of subsidies in 2022, the central government granted over RMB 150 billion (USD 20.5 billion) in subsidies for new energy vehicles. Adding local government subsidies, over a 13-year period, the total subsidies for new energy vehicles in China range between RMB 200–250 billion (USD 27.3–34.1 billion).
Through the Inflation Reduction Act, the US provides more than USD 300 billion in subsidies for new energy vehicles. There is currently no statistical data on the total subsidies in the EU, but in 2021 and 2022, the German government provided EUR 3.4 billion (USD 3.59 billion) in subsidies for new energy cars. In Germany, the government covers two-thirds of new energy car subsidies, with companies covering the remaining third. The actual subsidies received by consumers when purchasing a car exceeded EUR 5 billion (USD 5.28 billion).
China’s subsidies may have been introduced early, but they are not high when considering the individual vehicle subsidy amount or the total subsidy amount, compared to China, the US, and Europe, which represent the main markets for new energy cars. However, such subsidies appeared more beneficial to Chinese car companies because they were introduced earlier, captured the market in its early stages of development, and had its standards adjusted multiple times during the implementation process, guiding car companies to develop more competitive products.
Chinese car companies now have substantial advantages in terms of product quality and cost, and EU and US efforts to help their own companies catch up will need to provide higher individual vehicle subsidy levels, given that new energy car sales have reached a certain scale and subsidy policies are not as effective as they once were.
This article was adapted based on a feature originally written by Yin Lu and Gu Lingyu, and was published on Caijing Eleven (WeChat ID: caijingEleven). KrASIA is authorized to translate, adapt, and publish its contents.