The European Union is the first major car market to deal with an invasion of Chinese-built electric vehicles, and the trade bloc is starting to acknowledge the risks this entails for its market and auto industry.
The President of the European Commission, Ursula von der Leyen, announced the EU is launching an investigation into Chinese subsidies for EVs. This means that the political and economic union is considering imposing tariffs to protect itself against Chinese EV imports that benefit from state subsidies.
Ursula von der Leyen said on Wednesday 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," she noted in her annual speech to the European Parliament, labeling China's practices as unacceptable.
"So I can announce today that the Commission is launching an anti-subsidy investigation into electric vehicles coming from China. Europe is open to competition. Not for a race to the bottom," Ursula von der Leyen told the European Parliament. Mind you, she did add that "it is vital to keep open lines of communication and dialogue with China."
The fact the EU is opening the probe on Chinese-built and subsidized EVs despite concerns about retaliation from China – the largest market worldwide for several European carmakers – is a sign that the situation is very serious.
European manufacturers are finding it increasingly difficult to compete with Chinese EV makers on their home turf. China has many EV makers supported by government incentives for both industry and buyers, and many EV startups are expanding into Europe despite having yet to consistently generate profits.
Chinese-made EVs reached a market share of 8 percent in Europe so far this year, up from 6 percent in 2022 and 4 percent in 2021, according to autos consultancy Inovev cited by Reuters.
Chinese automakers, including BYD, SAIC-owned MG, Geely-owned Zeekr, EV startups Nio and XPeng, among many other smaller brands, are preparing to increase sales in Europe by launching more affordable products. If their plan succeeds, mass-market manufacturers like Volkswagen Group and Stellantis will suffer.
China's auto exports rose 31 percent in August following a 63 percent jump in July, the China Passenger Car Association (CPCA) announced earlier this month.
It will be interesting to see how China will react to the European Union's anti-subsidy probe especially since back at home, Chinese carmakers are under pressure amid slowing consumer demand that has ignited an aggressive price war.