European Commission President Ursula von der Leyen announced the investigation on Wednesday, claiming that China is saturating global markets with low-priced electric cars thanks to heavy government subsidies. Analysts at the Eurasia Group say the investigation highlights growing protectionist attitudes in Europe, and expect the EU to impose tariffs if Chinese subsidies are found to be causing harm.
Analysts also expect Beijing to take retaliatory measures against tariffs on subsidized Chinese electric vehicles, which could have a negative impact on European industries. The investigation may also hinder the capacity expansion of Chinese battery suppliers. However, they believe that this will not significantly affect Chinese EV manufacturers as they can focus on other expanding markets such as Southeast Asia.
According to Bernstein analysts, despite all this, the reputation of Chinese EV manufacturers may be damaged during their international expansion. They note that while Europe currently accounts for a small portion of these manufacturers’ overseas exposure, it remains the largest EV market outside of China, so any trade restrictions could weigh on sentiment.
After the news, market leader BYD’s share price fell by 3.7 percent, while smaller competitors Geely Auto fell by 0.6 percent, and state-owned automotive giant SAIC’s share price was also down by 3.4 percent.
In the case of Chinese car manufacturing companies listed on the American stock exchange, the market was able to react already in yesterday’s American trading session, the price of Xpeng fell by 3.1 percent, while the price of Nio went down by 4.7 percent.
The European Commission’s anti-subsidy investigation is likely to further aggravate already strained relations with China. The EU is seeking to reduce its dependence on the world’s second-largest economy and its most important trading partner, as tensions between Beijing and Moscow continue to rise after Russia’s invasion of Ukraine.
The investigation comes ahead of the annual China-EU summit scheduled for the end of the year, at which the EU is expected to push for greater access to the Chinese market and balance what it calls “unbalanced” trade relations. The Chinese Chamber of Commerce has opposed the investigation in the EU, arguing that the sector’s competitive advantage is not due to subsidies.
According to a European Commission report, China’s share of electric vehicles sold in Europe has increased to 8 percent and could reach 15 percent by 2025. In 2022, China will export 35 percent of all electric cars, an increase of 10 percentage points compared to the previous year, according to data from the US Center for Strategic and Internal Studies (CSIS).
Source: Reuters
Cover image source: Getty Images
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