China and Europe, Once Coexisting in Electric Vehicles, Now in Hostile Relations... Will Boycott Spread?

EU Commission Launches Investigation into Chinese EV Subsidies
"Chinese Subsidies Make Competition Difficult for European Companies"
Chinese Brands BYD and Xiaopeng Enter Europe One After Another
German Brands Like Volkswagen See Domestic Demand Slowdown
Attention on Whether Patriotic Consumption Will Spread in China

Until 2019, before the outbreak of COVID-19, China was a net importer of electric vehicles (EVs). At that time, the annual export value was just over $400 million, while imports were nearly six times larger, approaching $2.5 billion.

Three years later, last year, the export volume of electric vehicles exceeded $20 billion. Imports, on the other hand, decreased to $1.4 billion compared to the past. Even in China, known as the "world's factory," electric vehicles are considered a major export item. This year, exports continue to show strong growth. From January to July this year, China's electric vehicle export value was about $19.2 billion, already matching last year's annual export volume.

BYD electric vehicles waiting to board export ships at Suzhou Port, China

Where do the electric vehicles exported by China go? Mainly to Europe. Belgium, the United Kingdom, and Spain ranked among the top again this year, following last year. Among the top 10 countries by export value, six are in Europe. In the past, the large export volume was seen as a result of global companies producing goods in factories located in China and exporting them overseas.

Electric vehicles have also become a strong export sector as global manufacturers such as Tesla, Volkswagen, and Volvo produce them in their Chinese factories and export them overseas. The increase in sales of MG under Shanghai Automotive Industry Corporation (SAIC) in Europe shares the same background. MG is designed as a British brand with design and other aspects done in the UK, produced in China, and then exported back to Europe. MG's sales in Europe last year nearly reached 40,000 units.

The recent sharp increase is also due to the growing overseas sales of Chinese local manufacturers, in addition to global companies. Xiaopeng, one of the three major electric vehicle startups in China, announced plans to start selling new cars in Germany next year. It has already begun sales in Denmark and Norway and judged that it is worth trying even in the most competitive markets in Europe.

A Tesla store in Beijing, China. Tesla built its first overseas factory in Shanghai, China. Among automakers with factories in China, Tesla is the company that exports the most overseas.

BYD, competing with Tesla for the global number one and two positions in electric vehicle manufacturing, is expanding its presence worldwide. Initially focusing on neighboring countries such as Southeast Asia and Central Asia, it has recently broadened its stage globally. It covers practically the entire world except the United States, including countries like South Korea and Japan where foreign brands find competition difficult, as well as the Middle East and Latin America. Europe, where electric vehicles were introduced early, is also a major target.

The European Union Commission recently began investigating subsidies for Chinese electric vehicles, largely due to the rapid increase of cheap Chinese EVs in Europe. China has also increased exports to Europe, which is relatively easier due to deteriorating relations with the United States, amid overproduction of electric vehicles domestically. Since electric vehicles emit no carbon during operation, Europe has so far considered increasing EV adoption regardless of origin as the right direction.

Ursula von der Leyen, President of the European Commission

The decision to crack down on Chinese subsidies is interpreted as a response to competition over future mobility escalating beyond individual companies to the national level, necessitating active measures. China is the overwhelming number one country among non-EU electric vehicle importers in Europe, with import growth rates of 41% last year and an even steeper 136% increase this year. While addressing the climate crisis is important, there is also a growing concern that the leadership of the industry might be lost if this continues.

Unlike South Korea or the United States, the electric vehicle subsidies China provided until last year were given directly to manufacturers. Companies report sales volumes to local governments and apply for subsidies, which are then reviewed and disbursed. This allows companies to reflect the subsidy amount in pricing, effectively lowering vehicle prices. According to data compiled by the KOTRA local trade office, about 30 trillion won has been distributed to manufacturers since 2009 through last year. Over 12 years, BYD received about 1.3 trillion won, and Tesla about 650 billion won.

Since the mid-20th century, when free trade became widespread, subsidies with specific purposes that provide financial support to companies or industries are considered illegal under the World Trade Organization framework. It examines whether financial support was received directly or indirectly from public institutions and assesses damage to domestic industries to impose tariffs or other measures.

BYD, participating in Germany IAA Mobility 2023, set up an open space exhibition hall outside

There is growing interest in whether this will escalate into a trade dispute between China and Europe. Inside the Commission, trade retaliation is always possible, but it is considered unlikely that this subsidy investigation will trigger such a conflict. Some view it as part of a strategy to gain negotiation leverage ahead of a visit to China scheduled for this week. On the other hand, strong voices have emerged in China. The China Chamber of Commerce in Europe stated immediately after the investigation was announced, "Restricting products solely based on origin violates WTO commitments," and argued that the spread of Chinese electric vehicles is not the result of "enormous government subsidies."

A spokesperson for China's Ministry of Commerce also said in a press briefing, "The EU's investigation is a protectionist act under the name of 'fair competition' aimed at protecting domestic industries, disrupting and distorting the global automotive industry chain and supply chain," adding, "China is closely monitoring Europe's protectionist tendencies and subsequent measures and will firmly safeguard the legitimate rights and interests of Chinese companies." However, they also noted that the possibility of future dialogue with Europe remains open.

Chinese electric vehicle startup Weilai (Nio) Shanghai store

European automakers such as Volkswagen have encountered a setback amid a recent decline in local market share. This is because conflicts with foreign countries have historically led to increased consumption of domestic brands. Hyundai Motor and Kia sold about 1.8 million vehicles annually in China until 2016, but sales steadily declined after the THAAD (Terminal High Altitude Area Defense) controversy. Last year, sales were only about 300,000 units. According to market research firm MarkLines, the market share of German brands in China was about 24.2% in 2019 but dropped to around 18.4% (January to August this year). Most of the lost share went to Chinese brands.

This content was produced with the assistance of AI translation services.