European Union Launches Investigation into Beijing’s Financial Support for EV Industry

With many European industries facing severe economic and geo-political headwinds, little have faced as strong a wind as the continent’s car marking industry. For example, German car production has been under significant pressure with the number of cars produced slipping substantially due to rising input costs and other countries (including the US and China) looking to reshore. Given that the car manufacturing industry is estimated to account either directly or indirectly for over 6% of the EU’s workforce, the changing tides have got Brussels particularly concerned.

With much of the world’s new car production involving EVs, there has been an irresistible pivot from German EV manufacturing to Chinese EV manufacturing, not least with high profile companies including Tesla investing heavily into China. With many in Brussels arguing that such a pivot has come as a result of Beijing majorly increasing government support and subsidies for strategic industries (including EV production), yesterday the EU announced that it will launch an investigation into whether China has breached the EU’s anti-subsidy rules. With the pivot already showing signs of hurting the EU’s car industry, some estimates indicate that China’s current 8% share of the EU’s car market could double by 2025.

With commentators indicating that the probe will last the best part of a year, some are speculating on whether it will raise the possibility of a trade war between the two economies.

Nevertheless, as the Economic Times notes though EU officials “say they want to “de-risk” from Beijing without a full-blown economic decoupling” chiefly because China remains of the utmost importance in the supply of raw materials and components for the single market’s manufacturing industry (and of course its car production market). As such, Brussels will need to tread tremendously carefully.

Earlier in the year, China overtook Japan as the world’s top car exporter, just a year after China overtook Germany as the world’s second largest car exporter. Indeed, in May we learnt that China exported 1.07 million vehicles over the course of Q1, following a gargantuan 58% increase from Q1 2022. Much of this rise in production is thought to have come from a rise in demand for electric cars going to Russia, a country whose car industry has been hit by Western sanctions. China has seen the demand for new EV’s rise significantly as the world’s second largest economy tries to decarbonise areas of its economy. Demand for these cars abroad has also lifted production, and as alluded to Tesla have been amongst some of the big names to invest in China, having built a manufacturing plant in Shanghai which exports cars to Europe and Japan. As such, with tensions seemingly rising given the importance of the industry, all eyes now turn to Brussels’ latest move and Beijing’s response.