Chinese EV Prices Being Kept Artificially Low and Flooding the Market, EU Chief Says

The European Commission on Wednesday launched an investigation into subsidies given to electric vehicle manufacturers in China and whether or not the European Union should impose tariffs on Chinese EV imports.

"Global markets are now flooded with cheaper electric cars. And their price is kept artificially low by huge state subsidies," European Commission President Ursula von der Leyen said during her annual State of the Union address at the European Parliament in Strasbourg, France.

The announcement comes just months after China, for the first time, became the largest exporter of vehicles during the first six months of the year. China exported more than 2.34 million vehicles during the first half of 2023, overtaking Japan's 2.02 million during the same period, according to Nikkei Asia.

Experts have cited the "explosive growth" of of electric vehicle exports, slowed domestic interest in gas-guzzlers and state subsidies for EV and hybrid vehicle manufacturing for China's gains over Japan. Chinese state subsidies for companies making EV and hybrid vehicles totaled $57 billion over the last decade, compared to $12 billion in the U.S., according to consulting firm AlixPartners.

While China ended an 11-year subsidy subsidy for EV sales in 2022, some local officials have continued to offer incentives to buyers. In June, China's Ministry of Finance announced tax breaks for EVs and hybrids as part of a $72.3 billion tax incentive package, per Bloomberg.

"I can announce today that the Commission is launching an anti-subsidy investigation into electric vehicles coming from China," van der Leyen said. "Europe is open for competition. Not for a race to the bottom."

The commission's anti-subsidy investigations have 13 months to impose any measures, while provisional measures must be imposed no later than nine months. Notably, investigations are typically spurred by a "valid complaint" from the industry, rather than a direct action from the European Commission.

The investigation will cover battery-powered cars from China including both non-Chinese brands, such as Tesla and BMW, and Chinese EV makers like Xpeng and Nio.

Von der Leyen added that while the European bloc needs to defend itself against unfair competition, it must also maintain a dialogue with Beijing.

"We must defend ourselves against unfair practices. But equally, it is vital to keep open lines of communication and dialogue with China." von der Leyen said. “De-risk, not decouple. This will be my approach at the EU-China summit later this year."

Europe's automakers, worried by the challenge from China, have furthered partnerships with Chinese companies and cost-cutting strategies over the last several months. French automaker Renault said in July it aimed to cut production costs for EV vehicles by 40% by 2027, and reaffirmed its plans earlier this month at the IAA Mobility conference.

Several companies are developing technology specifically to cater to Chinese demand. Volkswagen, for example, has already created an automotive software company, CARIAD, and partnered with Xpeng and Chinese autonomous driving company Horizon Robotics.

“Competition is also a positive aspect to improve ourselves, and so China is one of our important markets, and we are continuing to invest heavily there,” Blume told CNBC on Sept. 4.