The US may be the loser in Europe’s case against China’s electric vehicles 

The European Union is investigating Chinese subsidies for electric vehicles. It sounds like the same old story, but it’s not. The reality is that this case is about an internal EU rivalry. 

Two implications follow. First, the EU would eventually derive a bigger political win by filing a complaint against the Biden administration’s Inflation Reduction Act. Second, because of the business model of its automakers, the EU will never be a stalwart ally of the U.S. against China when it comes to EVs.  

Last week, European Commission President Ursula von der Leyen set out the anti-subsidy case against China in her 2023 State of the Union Address. She explained that “global markets are now flooded with cheaper Chinese electric cars.” And she vowed that, unlike with solar panels, which she said had fallen victim to “China’s unfair trade practices,” the EU would defend itself when it comes to EVs.  

It’s true that, in the past, China ruthlessly exploited European state-funded purchase subsidies for solar panels to build an export industry. It was able to do this because, unlike U.S. incentive schemes, which are limited to purchases of U.S. manufacturers, EU law requires their subsidies to be open to all. 

Now, von der Leyen wants to show that things will be different with respect to EVs. First, the Commission self-initiated the anti-subsidy case, meaning that it is — or wants to appear to be — taking matters into its own hands, rather than simply acting on the demands of domestic firms. 

Second, the commission is waving around the regulation that protects the EU against subsidized imports as a big stick. The regulation does have some interesting features. Among other things, it includes a broad definition of “injury” (Article 8) and a quick 60-day clock on provisional duties (Article 12). All of this suggests that China could be hit with some big anti-subsidy tariffs in short order. 

But don’t bet on it. The EU’s anti-subsidy case will hinge on real data, and it doesn’t appear that Brussels has many numbers at its fingertips.  

Yes, China’s share of Europe’s EV market is 8 percent if Chinese acquisitions of brands such as Volvo, MG and Lotus (who still assemble their cars in Europe) are to be included. It could potentially reach 15 percent by 2025. It’s also clear that China builds EVs for less than its EU counterparts can, perhaps by as much as 20 percent.

Yet these statistics aren’t evidence of Chinese subsidies. 

China undoubtedly stands accused of subsidizing each and every part of its EVs and seeding demand for these vehicles. But Chinese subsidies are notoriously difficult to prove, and they must be proven to harm the European market.

Here’s where the story takes a different twist — namely, how nearly all imports are from Western brands. Cars that were actually made in China accounted for about 5 percent of all European sales. Amazingly, half of the Chinese imports are actually Teslas made at the company’s Shanghai Gigafactory. Its SUV, the Model Y, is so popular in Europe that it outsells all other EVs combined.  

The remainder of the imports are not Chinese-owned Volvo and MG, but Volkswagen and its subsidiaries such as Audi, Skoda and Cupra, or the Romanian marque Dacha owned by the French state-owned Renault Group. This is ironic, given how the French President Emmanuel Macron is suspected of backseat-driving the coming anti-subsidy probe. 

Meanwhile, indigenously Chinese brands — like BYD or the ailing XPeng (of which Volkswagen recently scooped up a 5 percent share) — account for less than 3,000 cars per year, or 0.03 percent of all European auto sales.  

While the Chinese competition is far behind in the rearview mirror, the German auto giants are increasingly adopting Apple’s business model of “design at home, build in China.” Those Chinese companies that do well in Europe acquired luxury brands — like the Swedish Volvo or the British MG and Lotus — and revived them with Chinese battery technology. In Sweden, the new Chinese owners of Volvo are well-respected compared to the previous owners, the Ford Motor Company, which abandoned it.  

Taken together, the anti-subsidy probe is a Western infighting that pits President Macron against Elon Musk. Germany and Sweden might also rally consumers and environmentalists to form a blocking minority against the tariffs. Volkswagen is China’s second largest car brand, selling over 1 million cars per year in the Middle Kingdom, and its influential home government and labor unions (both minority shareholders in Volkswagen) are keen to avoid another trade war just because the Chinese BYD ships a couple thousand dinky EVs to Europe. 

The Biden administration will be closely watching this case. There’s not a lot of good news here for the U.S. Politically speaking, Biden’s Inflation Reduction Act poses a similar problem for Brussels as Beijing, putting the lie to the view that the EU and the U.S. can be counted on to side with each other against China. 

Marc L. Busch is the Karl F. Landegger professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a global fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Hosuk Lee-Makiyama is director of the European Center for International Political Economy in Brussels and a senior fellow at the LSE and Singapore Institute of International Affairs.