China is Flooding the World with Cheap EVs. Europe Plans to Stop It

Currently, China is capable of building EVs cheaper than anyone else, anywhere in the world. The inexorable rise of Chinese auto brands that were unknown a decade ago and probably didn’t exist two decades ago has fuelled much consternation in Europe where brands made in China are starting to command serious amounts of market share.

Imports of Chinese-manufactured vehicles into Europe have surged this year by a whopping 112 percent and that is just in the first seven months of the year, but since 2021, the increase is more like 360 percent. And it is not because their cars are any better than those being built in Europe—they are just cheaper. This then begs the question: how do they do that?

Of course, as relatively new start-ups, most of the Chinese brands do not have the sort of legacy costs that established brick-and-mortar brands in Europe do. Allegedly, most of the research and development has involved dismantling foreign cars and, on a large scale, copying them (a topic we have written about many times in the past). You could also argue that labour costs are so much lower and cheap, land more plentiful, and so on and so forth, but the European Union thinks that the real reason is so much more insidious than that.

What could the legislators in Brussel be talking about? There is a documented overcapacity in the Chinese auto-manufacturing industry, which could be as high as 10 million per annum. This is not by accident. National and State governments have been subsidizing the industry in a scramble to get a slice of the world market, to the tune of USD15 billion in incentives since 2009 and perhaps another USD57 billion on tax breaks, etc between 2016 to 2022. In June of this year, the National Government announced addition tax breaks for EV manufacturing of USD72 billion to be distributed over the next four years.

Despite the claims from the Chinese government that the more than 20% price differential between Chinese and European offerings can be explained by the adoption of cheaper new tech and working practices, the European Union is not listening. The EC has announced that there will be an investigation into the ‘artificially low’ price of Chinese EVs. The news was worrying enough to send car manufacturers’ share prices tumbling in China as any export slowdown would seriously put the viability of some of the manufacturers in doubt.

It is not just European legislatures that are worrying about the Chinese onslaught. Carlos Tavares, CEO of Stellantis, claims that US and Euro brands will not be able to compete with subsidised made-in-China brands even though in the US of A, Chinese EVs are still hit with the 25% import tariff brought in by Donald Trump.

The big question is how do you make the Chinese manufacturers play fair? China is such a big market for most of the legacy auto-manufacturers they wouldn’t want a trade war and they know that if Europe raises tariffs, then China will follow suite. Europe then has a delicate path to tread. Companies like BMW could on the face of it be a big loser. 33% of their global sales are in China although most of the units sold are manufactured in China. And here is where it gets even crazier: many Euro brands like Renault and VW and BMW actually manufacture in China and export to Europe.