EU opens anti-subsidy probe into Chinese EVs

The European Union is launching an investigation into Chinese subsidies for electric vehicles as the bloc frets over the ability of its industry to compete.

European Commission President Ursula von der Leyen announced the probe Wednesday, saying that the global market is flooded with cheap Chinese cars.

“Their price is kept artificially low by huge state subsidies. This is distorting our market,” the head of the EU’s executive arm said in her annual speech to the European Parliament. “And as we do not accept this distortion from the inside in our market, we do not accept this from the outside.”

The probe is being opened despite concerns about retaliation from China, a sign of growing alarm over the ability of European manufacturers to compete with China’s industry.

China is home to a slew of EV makers supported by government incentives for both industry and buyers, and many of its upstart companies have yet to consistently generate profits.

Chinese automakers, including EV leader BYD and newer entrants MG and Nio, are preparing to increase sales in Europe with a range of competitively priced EVs that, if successful, will hit mass-market manufacturers such as Stellantis and Volkswagen Group.

At home, China’s automakers are under pressure amid slowing consumer demand that has sparked an aggressive price war.

As part of its ambitious Green Deal plan to cut emissions, the EU has implemented an effective ban on combustion engine cars starting in 2035.

The EU this year conducted a temporary review of its state aid rules to counter massive subsidies provided by the U.S. and China, especially in green technologies.

The bloc is particularly concerned about China’s economic practices, calling on Beijing to open up its market to rebalance the bilateral trade relations and putting in place new instruments to address China’s coercive practices targeting countries including Lithuania.

French Finance Minister Bruno Le Maire is in Berlin Wednesday to push Germany for tougher measures to protect European industry.

“We now need a European industrial strategy that is much more proactive, much more innovative, much more protective of our industrial interests in relation to China and the U.S.,” Le Maire said Tuesday on French television LCI. “There is not a day to lose.”

German Economy Minister Robert Habeck welcomed the European Union's actions against Chinese-made electric cars. "This is about unfair competition, it's not about keeping efficient cheap cars out of the European market," Habeck said. Habeck added that if the EU investigation proved that there are massive breaches of competition rules, "we must of course take action."

"China's apparent advantage and cost-competitive imports are already impacting European auto makers' domestic market share, with a massive surge in electric vehicle imports in recent years. At the same time, the U.S. Inflation Reduction Act (IRA) is also a game-changer in the electric vehicle value chain," Sigrid De Vries, the head of the European industry lobbying group ACEA, said in reaction to the move.

"Von der Leyen's announcement is a positive signal that the European Commission is recognising the increasingly asymmetric situation our industry is faced with, and is giving urgent consideration to distorted competition in our sector," she added.

In a note of caution, Germany's VDA auto association said on Wednesday that the EU must take into account a possible backlash from China to such an investigation. The VDA said policymakers should focus on creating the conditions for European players to succeed on their own turf - from lowering electricity prices to reducing bureaucratic hurdles.

Last week at the IAA Mobility show in Munich the CEOs of BMW Group, Mercedes and VW Group all spoke positively about deepening ties with the Chinese. Mercedes boss Ola Kallenius, said tariffs and trade barriers with China are not the way forward. "We should uphold free trade," he said at the Chinese-operated World New Energy Vehicle Congress.

Von der Leyen will also need to decide soon whether to stick with plans to introduce a tariff starting next year on electric vehicles shipping between the EU and the U.K., which some officials and the industry say will damage European automakers and boost competition from China.

The matter is still being debated internally and a final decision on whether to delay the move has yet to be taken, Bloomberg has previously reported.