Threat to Global Supply Chain Stability: EU's Investigation on Chinese EV Imports

Chinese electric vehicle maker BYD showcased its vehicles at the International Motor Show IAA MOBILITY in Munich on September 4, 2023. The European Union (EU) recently launched an investigation into the imports of new battery electric vehicles (BEVs) from China, following an announcement by European Commission President Ursula von der Leyen on September 13. The investigation, which began on October 4, is seen as politically motivated rather than purely economic.

Unlike previous investigations, this probe into BEV imports from China was initiated by the European Commission itself, without any industry complaints. Known as an "ex-officio" investigation, this approach is typically used when there is a concern that suppliers may be circumventing existing penalties. However, ex-officio investigations regarding subsidies and dumping are rare, as the Commission is not typically responsible for monitoring industry development.

The French government played a significant role in pressuring for the investigation, aiming to strengthen Europe's industrial defenses against China's rapidly expanding electric vehicle industry. Pre-initiation consultations with the Chinese government, as required by EU and World Trade Organization (WTO) rules, were conducted, but the time allocated for these consultations was notably brief and lacked comprehensive consultation materials.

Ironically, while lobbying for an anti-subsidy investigation into Chinese electric vehicles, France announced that consumer bonuses for EV purchases will be redirected towards European-made vehicles from next year.

The investigation focuses on new battery electric vehicles designed to transport nine or fewer people, including the driver, and powered exclusively by one or more electric motors. The European Commission claims that these vehicles are flooding the EU markets at low prices. However, the competitive pricing of Chinese EVs is not solely due to subsidies but also stems from technological innovation, economies of scale, and the comparative advantages built up in the Chinese market.

It is worth noting that American and European car manufacturers and Chinese carmakers have different focuses in the EV market. Chinese carmakers have prioritized developing smaller and more affordable models, while their American and European counterparts have mainly focused on larger or more luxurious models. This difference in focus has made Chinese EVs more affordable for mass-market consumers.

The investigation will not only impact Chinese brands but also American and European brands, as the EV supply chain is globally connected and the markets are globally integrated. China's EV companies have emerged as global competitors, thanks to innovative engineering and economies of scale. Meanwhile, European and American carmakers increasingly use China as an EV manufacturing platform due to its manufacturing capacity, favorable policies, and cost-effective production capabilities.

BYD, one of China's top BEV producers, manufactures its EVs in China, with 99% of them sold domestically. On the other hand, Tesla, the leading BEV giant, exports a significant portion of its EVs assembled in the United States and China. During the first half of 2023, only 11% of China's EV production was exported, with two-thirds of the exported BEVs being non-Chinese brands.

The EU recognizes the potential of the EV market for Europe's future competitiveness and green industrial leadership. However, the investigation seems to prioritize protecting the EU's own industry rather than considering the benefits of imported BEVs for consumers. Therefore, the investigation is driven more by political considerations than purely economic ones.

He Shuquan is a professor at the School of Economics, Shanghai University.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.