The European Union is ready for Chinese competition, but only if China plays by the same rules as Europe. To verify this, the European Commission is launching an investigation into subsidies in the Chinese automobile industry. If massive government subsidies are proven, tariffs on electric vehicles made in China could increase.
“ Europe is open to competition. Not a race to the bottom. » This sentence pronounced, this September 13, 2023, by Ursula von der Leyen as President of the European Commission, will certainly make an impression. It is a speech which is strangely reminiscent of positions adopted a few years earlier to stop the massive influx of Chinese solar panels. Europe has just announced that it is launching a major “anti-subsidy” investigation, over 13 months, concerning electric cars produced in China.
Even if this approach appears to respond to thecall from Luca de Meoboss of Renault and president of the association of European automobile manufacturers, she is more generally an admission of failure of Europe in the face of wave of “made in China” electric cars. France, with its future ecological bonus, opened the way to a protectionist desire. Europe now threatens to financially sanction imports if competition is deemed unfair because of subsidies. All this above all looks like a rather dangerous standoff against China.
A political posture with strange timing
To justify the initiative of this investigation, Ursula von der Leyen states: “ Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge public subsidies. »
There is a certain irony in the words of the President of the European Commission. If Chinese electric vehicles are now arriving en masse in Europe, it is becauseEuropean Union has decided to switch to 100% electric within a particularly tight deadline (before 2035). Despite the alerts from European manufacturerstelling them that they were not ready, the decision to transition to electric cars was made with full knowledge of the facts.
European manufacturers then developed first generation (or second for some) 100% electric models to begin to meet demand. Their development is expensive and the industrialization processes are absolutely not optimized, compared to Tesla or Chinese competition. THE electric cars are therefore expensive for the buyer and unprofitable for historic manufacturers. To encourage manufacturers to set up in Europe, rather than in China, European governments massively help the establishment of international groups (as with the battery valley in France) with great reinforcements of tax advantages.
For its part, China launched the electrification of its automobile industry much earlier, more than 11 years before. But it is especially over the last 4 years that the transformation has been truly massive and impressive. Of course, the Chinese government has heavily subsidized this industry to help it develop on the local market, but also with ambitions for international conquests. However, China has since cut off most of the subsidy taps for manufacturers. There remains mainly purchasing aid, equivalent to our European bonus systems.
The investigation initiated by the European Commission seems to have been launched at the wrong time. However, this ultimately covers a fairly broad scope: from the prices of raw materials and batteries to preferential loans or the provision of cheap land for factories.
Unfair competition or an intelligently prepared strategy?
Chinese manufacturers benefit from a clear advantage on production costs: around 20% on raw materials and supplies, according to the Nio founder’s own admission, cited by Reuters. This can be seen as unfair competition, but it is above all a competitive advantage developed by China, and abandoned until now by Europe. If the country now has take control of lithiumsemiconductors and all spare parts, it is because Europe has made the choice to source its supplies there or to relocate its production there for many years.
After having created a strong dependence on China (before Covid) for the supply of parts, the European Union now wants to repatriate everything to its territory. However, it will take time to reindustrialize Europe and find, then train, a workforce. And, this will not change the technological advance taken by Chinese manufacturers in a few years.
Finally, it is also on the cost of electricity and payroll that China is able to widen the gap. This is one of the elements denounced Luca de Meo in a speech in August on Europe’s lack of competitiveness. The European Commission has taken this element into account and will look for solutions. However, it will always be easier to judge that China is abusing subsidies to increase customs fees applied to its electric vehicles, than to thoroughly review the functioning of Member States and common policy.
A risky conflict for European manufacturers
Since the beginning of conflict between Ukraine and Russia, tensions between China and the EU have increased. Ursula von der Leyen’s speech on September 13 is a bit like striking a match in a space filled with flammable substances. European manufacturers have already lost (for some a lot) in Russiathis should not happen again by starting an open conflict with China at such short notice.
All European manufacturers depend in one way or another on China, for:
If China chooses to retaliate against the EU’s proposals, the boomerang return could certainly do some serious damage. Europe is not really in a position of strength in history.
Wanting to find an excuse to tax imports responds above all to a populist political need in view of upcoming elections. Some manufacturers and political figures believe in the capabilities of the European automobile industry to react and be competitive in the face of electric cars imported from China. Europe just needs to support them with the right regulations and the right changes to give them the necessary boost.
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