Chinese official slams EU probe into EV subsidies as ‘selective’

Chinese official slams EU probe into EV subsidies as ‘selective’

Employees assemble new energy vehicles at an intelligent factory of electric vehicle company Leapmotor on April 8, 2024 in Jinhua, Zhejiang Province of China. 

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BEIJING — Europe’s probe into Chinese electric cars was overly selective to the point that the results are not credible, a Chinese official claimed in an exclusive interview with CNBC on Monday.

The European Commission last week announced plans to impose tariffs on imported Chinese electric vehicles starting July 4. The provisional decision followed a monthslong probe into the role of government subsidies in Chinese EVs.

China’s electric car industry has taken off after more than ten years of development. Domestically, it’s put not only Tesla under pressure but pushed traditional automakers and startups alike into fierce competition over car tech features and price. Slowing growth at home has also encouraged Chinese electric car companies to ramp up sales strategies for Southeast Asia, the Middle East and Europe.

The Chinese side has publicly criticized the EU’s move and denied corresponding allegations — including from the U.S. — of industrial overcapacity that puts manufacturers in other countries at risk of shutting down and laying off workers.

The EU anti-subsidy probe only looked at Chinese companies, instead of businesses with the largest export volume, said Jin Ruiting, director of the Academy of Macroeconomic Research, a research institution directly under the National Development and Reform Commission. He did not specify which exporters.

The sample choice was “very selective,” Jin said in Mandarin, translated by CNBC. He claimed that was in violation of World Trade Organization rules.

The WTO declined to comment.

“In line with rules applicable, the final selection of the sample was based on the largest representative volume of production, sales or exports to the Union that can reasonably be investigated within the time available,” Olof Gill, the European Commission’s spokesperson for trade and agriculture, said in a statement to CNBC.

Gill said the largest export volume was not the only criteria and that the Commission also looked at production and domestic sales volume. “The Commission considers that the sample was selected in accordance with the WTO rules and the corresponding EU legislation in this regard,” he said.

Major German automakers, which derive significant sales from China and have local partnerships, swiftly voiced their opposition to the EU’s planned tariffs.

Volkswagen Group said in a statement that it rejects “countervailing duties” and that “the timing of the EU Commission’s decision is detrimental to the current weak demand for BEV vehicles in Germany and Europe.”

“The Volkswagen Group confidently accepts the growing international competition, including from China, and sees this as an opportunity. This also benefits our customers,” the German automaker said.

Volkswagen delivered 3.2 million passenger cars in China last year, more than its 3.1 million deliveries to Western Europe, including the U.K. BMW Group also delivered more cars in China last year than in continental Europe.

“Protectionism risks starting a spiral: Tariffs lead to new tariffs, to isolation rather than cooperation,” Oliver Zipse, CEO of the BMW Group, said in a statement. “From the BMW Group’s point of view, protectionist measures, such as the introduction of import duties, do not contribute to successfully compete on international markets.”

The EU probe included Tesla, which opened a factory in Shanghai in 2019 and exports some of the China-made cars to other markets. The Commission said Elon Musk’s automaker might receive an individual tariff.

Requiring industry complaint?

The NDRC’s Jin added that the EU anti-subsidy probe does not appear to be based off an industry or business complaint.

“There is a problem with [the EU’s] sample selection, and I think there’s a big problem with the conclusion,” he said in Mandarin, translated by CNBC. “So I think the investigation process is not transparent, and the results are not credible.”

The EU’s Gill said the bloc’s regulation allows the Commission to initiate an investigation without having to receive an industry complaint.

The Commission said last week its probe concluded that Chinese-made battery-electric cars benefit from “unfair subsidisation, which is causing a threat of economic injury to EU BEV producers.”

“Consequently, the Commission has reached out to Chinese authorities to discuss these findings and explore possible ways to resolve the issues identified in a WTO-compatible manner,” the EU statement said.

The planned tariffs range from 17.4% for BYD cars to 38.1% for electric vehicles from state-owned SAIC.

Rhodium Group analysts said in an April report that duties would likely need to reach 40% to 50%, if not higher for BYD, to “make the European market unattractive for Chinese EV exporters.”

The Biden administration in May announced it would raise tariffs on imports of Chinese electric cars from 25% to 100%. A senior administration official cited “rapidly growing exports” and “excess capacity” as reasons for the new duties.

EVs vs ICE cars

Jin claimed that while capacity utilization for traditional fuel-powered vehicle companies in China was 70% to 80%, that of BYD and some new energy vehicle companies was 100% or far higher.

He also pointed to a report from the International Energy Agency that predicts high demand for electric cars if the world is to achieve net zero emissions in coming decades — a demand Jin said Chinese automakers are only starting to fulfill.

The IEA said that in order to achieve net-zero emissions by 2050, it anticipates electric car sales will need to account for around 65% of global car sales in 2030. That requires average growth of 23% in sales each year through then. The agency said electric car sales grew by nearly 35% in 2023 from the prior year.

Jin claimed that excess supply was a reason why global trade existed, and that if China was producing too many electric cars, other countries dominated in global exports of liquefied natural gas, agricultural products and high-end semiconductors.

Overall, Jin emphasized the need for global cooperation instead of de-risking, despite what he called the short-term benefits for some politicians.

Beijing has repeatedly asked the Biden administration to remove restrictions on U.S. sales of advanced semiconductors to China.

— CNBC’s Rebecca Picciotto contributed to this report.

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