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The International Motor Show, Europe’s largest automobile exhibition, is usually dominated by the continent’s top combustion engine brands, including BMW, Mercedes, and Porsche. However, at the most recent expo in Munich last week, all eyes were on electric vehicles. This particular sector has seen the EU’s auto industry lagging far behind China.
The EU is determined to prevent the same outcome that happened to its solar industry, which was overwhelmed by cheap Chinese imports. To address this, European Commission President Ursula von der Leyen has announced an anti-subsidy probe into China’s electric vehicle industry. This move signals an escalation of tensions with Beijing as the bloc aims to reduce its reliance on China.
It comes as no surprise that China has heavily subsidized its electric vehicle industry, controlling the supply chain from raw materials to production for years. Within this context, the EU’s investigation of Chinese practices is warranted. However, implementing retaliatory measures would not serve the EU’s best interests.
First and foremost, if the EU is serious about reducing carbon emissions, it shouldn’t matter where electric vehicles are produced, especially since the EU plans to ban the sale of new combustion engine cars by 2035. Additionally, China’s presence in the European EV market does not pose a clear national security risk, and there is already a 10% tariff on Chinese EVs. Previously, Brussels imposed tariffs on Chinese solar panels but later removed them due to the inability to meet its renewable energy targets without them.
Imposing more tariffs on Chinese imports would only protect European carmakers, who have been slow to adopt electric vehicles. German manufacturers, in particular, have been resistant to change, with trade unions and car lobbies hesitant to move away from internal combustion engines. European tariffs on Chinese EVs could strain relations and potentially trigger retaliation from Beijing, which would be detrimental to European interests. Furthermore, cheap imports from China benefit the EU, especially when European production is less efficient. German producers heavily rely on the Chinese market, and European manufacturers already incorporate batteries made by Chinese companies into their supply chains, either in Europe or China. Similar attempts to counter car imports from Japan in the 1980s ultimately resulted in Japanese firms shifting production to Europe anyway.
While the probe may be a response to political pressure, Europe still needs to accelerate the development of EV models and expertise to avoid becoming overly dependent on Chinese production. Despite the influx of Chinese EVs, there will still be a sufficient market for domestic manufacturers given the projected demand. Imports of Chinese EVs currently make up only a small share of the bloc’s market, but that share is expected to rise to 15% in the future.
China’s actions have created an uneven playing field, but the gap between European and Chinese EV makers cannot be solely attributed to Beijing. Europe has been slow in transitioning and lacked foresight in this regard. The bloc must increase its presence in the EV industry, and this can be achieved through enhanced tax incentives and the development of charging infrastructure. However, resorting to protectionism is not the solution. Industries evolve, and for automakers, the true value lies in the battery, not the engine. Europe has learned this lesson the hard way, and perhaps competitive pressures can compel its manufacturers to finally make the leap.
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