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Tesla and car manufacturers under scrutiny in EU's probe of China's electric vehicle subsidies

Tesla is caught in the crosshairs of an anti-subsidiary investigation by the EU on EV's associated with China
Tesla is caught in the crosshairs of an anti-subsidiary investigation by the EU on EV's associated with China Copyright David Zalubowski/AP
Copyright David Zalubowski/AP
By Daniel Harper
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Tesla, among other electrical vehicle manufacturers, is caught in the crosshairs of the EU’s investigation into anti-subsidy inquiry with China.

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The electric vehicle (EV) industry with ties to China has found itself at the centre of a significant investigation led by the European Union. Beginning when President of the European Commission, Ursula von der Leyen, announced an anti-subsidy inquiry into China-made electric cars during her State of the Union speech earlier this month.

This move has far-reaching implications for not only Chinese EV manufacturers but also global players like Tesla and European automakers exporting from China to the European Union.

EU executive vice-president Valdis Dombrovskis stated that there was ‘sufficient prima facie (Latin meaning ‘first impression’) evidence’ to justify the investigation into imports of battery-powered vehicles from China. The EU is concerned that these subsidised imports could potentially overwhelm the European car industry, creating an uneven playing field. He emphasised that the probe was not limited to Chinese brands alone, raising the possibility that other manufacturers might also come under scrutiny.

Who’s under investigation?

Among the companies implicated in the investigation, Tesla, the world's largest EV maker largely due to its Shanghai factory, faces the possibility of punitive tariffs if it's found to have accepted substantial state subsidies from China. This could render exports from its flagship plant economically unviable, potentially impacting the Model 3 sedans destined for the EU's Single Market, which make up a significant portion of Tesla's production volume.

This development is not only a cause for concern for Tesla but also for European brands like Polestar, BMW, and Cupra, which exclusively manufacture some of their EV models in China for export to the European market. The EU's investigation aims to assess whether China has subsidised not only Tesla but also domestic manufacturers like BYD, SAIC Motor, and Nio, and to take appropriate measures to level the playing field for the EU's EV industry.

This investigation could change the EV market

China's rapid rise in the EV market is undeniable, with major brands such as BYD, Nio, and XPeng exporting high-tech electric cars. Their focus on affordability and advanced electric drivetrains makes them a formidable threat to incumbent automakers, including premium brands. This situation has prompted the EU to take action, comparing it to the challenges faced by the European solar industry when confronted with cheap imports from China in the past.

The EU's investigation has the potential to reshape the competitive dynamics in Europe, which is the world's second-largest EV market after China. Both sides have reasons to proceed cautiously, as the EU could expose its manufacturers to potential retaliation, while Chinese companies rely on the EU as a crucial export destination. European automakers like BMW and Renault, which operate joint ventures with Chinese manufacturers, are also keeping a close eye on the developments.

Eurostat
International trade in electric carsEurostat

The Green Aspect

Perhaps what is more telling for the future is the effect that possible action against Tesla and other EV manufacturers might have on electric transportation for the European consumer. Higher prices might mean more reluctance to adopt greener options such as Tesla’s EVs.

‘While subsidies may have competitive effects, these should be weighed against the important noneconomic objective of achieving climate neutrality’, Professor Hoekman, Director of Global Economics at the European University Institute in Florence, told Euronews.

‘The green transition requires a shift towards EVs. It is important that the investigation considers whether imposing countervailing duties that increase the price of EVs is in the broader Union interest given the urgent need to shift to renewables.’ Hoekman commented.

As the investigation progresses, the EU will consult with relevant authorities in China and the companies involved to determine the extent to which subsidies may be affecting EU producers. The outcome of this investigation could have a significant impact on the global EV industry and shape the future of electric mobility in Europe.

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