Great Wall Motor was the first Chinese automaker to respond to the European Commission’s investigation into the alleged practice of state subsidies in the electric vehicle sector. The company, which complained about the short time available to respond, explained that it plans to build factories in the European Union (it selects a location) and called for a “free and open trading environment”. The Chinese want to avoid European tariffs in the electric car sector and have criticized Brussels, which launched an official investigation into Chinese brands in October.
The starting signal was given on September 13 by the committee’s chairman, Ursula Von der Leyen, who accused Chinese companies of distorting the market. The speech was poorly received by the European People’s Party (center-right family in the EU) to which Von der Leyen belongs, and by Germany, which fears negative consequences for its industry and exports.
The European investigation has the potential to create a trade conflict between the two blocs. The top ten electric vehicle sellers include at least four Chinese companies, including the second and third largest in the world. Beijing makes no secret of its ambitions in high-tech sectors, such as semiconductors, industrial robots, artificial intelligence or smart cities. China has gained a dominant position in electric cars, posing a threat to European automakers, whose delay in electrification could lead to market share losses. In addition, Chinese manufacturers are in overproduction and have increased exports of electric vehicles to Europe.
The investigation into Chinese state subsidies began on October 4, at the initiative of the committee itself. Not much is known about the existing evidence or whether the lower prices of Chinese car imports are the result of productivity or innovation, as some market participants say. The EU will be divided on this issue, as the investigation mainly interests France.
The Chinese government has already responded, complaining about the short deadline for bilateral talks and, according to Beijing, failure to comply with World Trade Organization rules. It is up to Brussels to prove that there were harmful subsidies and deadlines for the introduction of punitive taxes, which would bring the clash between the two blocs to the summer of 2024.
Turnover is increasing
Sales of electric or hybrid cars are increasing throughout Europe. In Germany, the segment already represented 21.7% of the total number of new private vehicles in the first half of the year. Portugal had a value several tenths higher than Germany. The share of Chinese manufacturers is still limited, less than 2% of the total, but brands are starting to appear with cheaper models and therefore their growth should accelerate.
France is considering introducing a purchase subsidy only for European manufacturers and Germany changed its incentives last year, without halting tram sales. This year, the subsidy for the purchase of hybrids was abolished and this segment fell sharply, which was offset by the adoption of cars that run exclusively on batteries.
The European Union has created favorable conditions for the expansion of electric technology, especially with the decision to ban from 2035 the production of cars with combustion engines, a technology in which European manufacturers were the most advanced. The EU tried to subsidize the purchase of vehicles and support the expansion of the charging network. Last month, the German government announced public spending of 1.8 billion euros to finance this charging network, arguing that the market alone cannot solve the limitations.
Berlin fears that motorists’ fears about the lack of charging stations on its roads will slow the pace of electric car adoption. The grant will fund 8,000 fast-charging stations in 900 locations across the country with lower population densities. The measure was approved by Brussels, which in turn has an ambitious program for expanding the European network: full coverage on main routes and more transparent payment systems.
Chinese threat
Without tariffs, Chinese industry can benefit from these investments. As the New York Times recently wrote, there’s an electric car company (NIO) that’s losing $35,000 for every car sold. This would not be possible without generous subsidies. The company has 11,000 employees in its research and development area, but sells only 8,000 vehicles per year. This will soon change with the construction of new state-of-the-art factories. Production is automated: in one of the facilities, 30 employees can produce 300,000 electric motors per year.
NIO’s losses amounted to $835 million between April and June, the American newspaper reported. When there were financial difficulties in 2020, a local government intervened by purchasing 24% of the shares. It was also possible to obtain significant credits with the help of a state bank.
These types of manufacturers are considered a threat to European manufacturers, because of the innovations they introduce, especially in the field of batteries with greater autonomy, but also because of industrial progress in production. Chinese electric car exports have grown by 850% in the past three years, mainly to Europe. On the other hand, these companies claim that they create quality products, accelerating the transition to electric mobility, making it possible to achieve the goals of reducing greenhouse gas emissions more quickly.
The scenario seems unfavorable for the European industry. The Chinese are strong in factory robots and battery chemistry, as well as in their production. In addition, Beijing has a significant presence in raw materials for the energy transition, namely lithium, a crucial mineral for electric cars.
The price of lithium has fallen in recent weeks, but profits for the Chinese companies that control the market remain robust. The reasons for the price drop are unclear. Analysts talk about electric car sales in China being lower than expected (the economy is slowing), which in turn helps explain the increase in Chinese exports. Over the next decade, global demand for lithium is expected to grow by 20% annually and many countries, including Portugal, are trying to get into this sector. In batteries, around the world, three-quarters of the major factories planned for 2030 will come from companies in China.
Australia is the world’s largest producer of lithium, but China dominates refining, i.e. the production of lithium carbonate that serves as an essential raw material for batteries. The Chinese control 60% of the world’s refining and an even larger share of car battery production. Europeans and Americans want to avoid dependency, but they need several years to get their mines working, and there are also the harmful environmental consequences of refining, in addition to the high consumption of water and energy. The Russians played a role in the market, but were sidelined by Western sanctions.
Possibilities
Chinese industry benefits from low production costs (steel, wages, electronic components) and exports aggressively, although the US market is more difficult due to restrictive tariffs. In just a few months, the Chinese industry conquered the Russian market, which was abandoned by Western brands after the invasion of Ukraine. An additional advantage of the Chinese in Europe is the fact that they have bought European brands, such as Volvo or MG.
The rivalry in the sector involves American, European and Chinese brands, as well as Japanese and Korean brands. For example, China’s BYD is poised to surpass the sales of America’s Tesla, which led the first phase of its electric car expansion. Globally, the two brands are expected to sell around 1.8 million electric cars each this year.
As recently as 1995, BYD was a battery manufacturer. The founder, Wang Chuanfu, 57 years old, son of farmers, studied chemical engineering and started his career copying Japanese batteries. What was the secret of success? The entrepreneur divided battery production into simple steps, each of which could be performed by low-skilled workers. Over the past decade, the company has focused on electric vehicles. After problems in 2019, sales quadrupled between 2020 and 2022.
Source: DN
