The German auto industry is worried. How high the subsidies are and why China suddenly wants to export so many electric cars.
Who are China's largest electric car exporters?
One in three electric cars, including plug-in hybrids, exported from China is a Tesla. The Tesla factory in Shanghai produces a large proportion for export. In the first eight months of this year alone, the group shipped 235,000 vehicles; according to the management consultancy Automobility, the group sold almost 400,000 cars in the country. In second place is market leader BYD, the largest manufacturer of electric cars and plug-in hybrids in the world. BYD exported 125,000 vehicles, about half as many as Tesla.
How much are China's subsidies for electric cars?
The People's Republic has been promoting electric cars for more than 15 years with direct aid to manufacturers, with support in the supply chains, with discounted loans and purchase incentives such as bonuses and tax breaks for consumers. In addition, many manufacturers are state-owned companies. However, the most successful electric car producers are private companies. It is difficult to quantify how much aid will be provided in total. Tax relief will amount to more than RMB 200 billion (26 billion euros) by 2022, Vice Finance Minister Xu Hongcai said in June. The measure was extended by 4 years, which, according to the government, corresponds to a volume of around 67 billion euros. Purchase bonuses have expired. Many other countries also provide similar support for buyers and manufacturers.
How does Europe subsidize its car industry?
Germany is not skimping on subsidies either, especially since the EU relaxed the subsidy rules due to the Corona and energy supply crises. Apparently there is currently a gamble on subsidies for Northvolt's planned and then postponed battery factory in Schleswig-Holstein. Saarland has announced a fund of 3 billion euros in 2022 to find replacements for combustion engine production with investment incentives. Tesla and other battery manufacturers were promised subsidies for new factories. Tesla has withdrawn its application for a battery factory in Brandenburg, supposedly in order not to have to reveal company secrets with the funding documents. Perhaps this production should now take place where there are even more subsidies.
Why does China suddenly want to export so many electric cars?
The high subsidies have triggered a boom; production capacities for electric cars, but also for combustion engines, significantly exceed local sales.
The People's Republic will soon be able to produce 15 million electric cars a year; sales were just under 7 million cars last year and 4.5 million vehicles by the end of July this year.
Because state-owned companies, which are often affiliated with provincial governments, are less concerned with profits and more with local jobs, the companies survive longer and therefore continue to produce cars. The excess capacity has triggered a price war, which Tesla in particular continues to fuel. Apart from BYD, hardly any Chinese manufacturers make money. That's why more and more companies are looking for salvation in exports.
The US market is de facto sealed off, more than 400,000 older combustion cars went to Russia by the end of July, and China only exports more electric cars to Europe than combustion engines.
Cars there often cost almost twice as much.
How does China react?
The Chinese Ministry of Commerce called the move “blatant protectionist behavior.” Supply chains would be disrupted and Chinese-European economic relations would be strained. The EU will closely monitor further measures and “resolutely protect” the rights of Chinese companies. On social media, users make accusations against the EU and make caustic comments. When someone points out that these subsidies actually exist, criticism rains down on them. Observers expect Beijing to react soon and create its own threat backdrop.
What does the German auto industry say?
The Association of the German Automotive Industry (VDA) avoids mentioning conflicting interests between Germany and France. A spokesman for the association also says: “Possible counter-reactions from China must be taken into account.” The VDA is committed to free, fair and rule-based trade. This applies to both exports and imports from third countries. The rules for trade are set out in free trade agreements, in the World Trade Organization (WTO) and in the principles unilaterally established by the EU. The EU's anti-subsidy investigations are "a very formal procedure based on defined criteria and steps. Damage must be able to be causally measured and the community interest must be taken into account be seen."
Could a higher tariff help European automakers?
From the VDA's point of view, it is clear: "An anti-subsidy investigation alone does not help solve the existing challenges with regard to the competitiveness of the European location." Politicians in Brussels and Berlin must create the framework conditions so that the transformation towards electric cars is successful.
"Innovative concepts and long-term strategies are needed because the German and European locations suffer from high energy costs, taxes, levies, levies and excessive bureaucracy." The automotive industry also needs an improvement in investment conditions for companies in order to enable the development of an electromobility value chain. Berlin and Brussels would also have to put trade agreements and raw materials partnerships at the top of the priority list in order to enable diversification and resilience.
Why do other countries want protection against China's competition?
The fear of an onslaught by Chinese car manufacturers on the European market is also a consequence of the fact that there are hardly any affordable electric cars in Europe, says Giovanni Quagliano from the Bolognese market observer Centro Studi Promotor. The first thing that would be hit by the new competition would be those European manufacturers who otherwise focus primarily on cheaper market segments, i.e. those in France and Italy.
Are subsidies the only reason for lower costs in China?
China's leadership has created targets for the industry and a framework for sales. Research, development and foresight of the relevant companies have built up the technological lead in this environment, comments Harald Proff, head of the global automotive sector at the management consultancy Deloitte. “China created favorable conditions and a market for electric cars years ago,” says Proff. "This enabled Chinese manufacturers to scale their production early on and reduce costs." What is more important for their success, however, is that the companies themselves also follow the trend early on. "They have integrated themselves along the entire battery value chain - including the development of battery cells. This gives them a significant lead in terms of time. Today the companies are leaders in battery technology." It can be assumed that they can now offer their electric cars more cheaply on the European market even without government support, says the Deloitte consultant. UBS analysts who specialize in the automotive industry calculate that overall the production costs of a Volkswagen ID.3 are 35 percent higher than those of BYD's competing Seal model.
Transport, current customs and taxes would make the model more expensive in Europe, but even then a car built in Romania would be $1,000 more expensive than the imported product from China.
Which Chinese manufacturers would be particularly affected by extra tariffs?
If the EU were to actually impose tariffs as a result of its investigation, it would initially affect the largest electric car exporters, i.e. BYD and Tesla. However, both companies are also the market leaders for electric cars in China. BYD's export share is less than a tenth, and Tesla's share is higher. The shares of various Chinese manufacturers fell significantly on Thursday. BYD temporarily lost almost 4 percent, the Shanghai state-owned company SAIC with brands like MG 3 lost 4 percent, and the start-ups Xpeng and Nio lost around 2 percent." [1]
1. Was Sie über den Zollstreit zwischen der EU und China wissen müssen
Frankfurter
Allgemeine Zeitung (online)Frankfurter Allgemeine Zeitung GmbH. Sep 14,
2023. Von Tobias Piller, Frankfurt und Gustav Theile, Schanghai
