The European Union and China are locked in a fierce competition over the future of electric vehicles (EVs), a key sector for achieving climate neutrality and reducing greenhouse gas emissions. The EU has recently launched an anti-subsidy investigation into Chinese EV imports, alleging that they benefit from unfair state support and distort the market. China, meanwhile, has been ramping up its EV production and exports, leveraging its advantages in battery technology, raw materials, and patents. The outcome of this dispute will have significant implications for the EU-China relations, the global EV market, and the transition to a low-carbon economy.
The EU has made the development of its EV sector a cornerstone of its environmental policy, as part of its ambitious Fit for 55 legislation review package. The package aims to align the EU’s policies with its goal of reducing net greenhouse gas emissions by 55% by 2030, compared to 1990 levels. One of the main targets of the package is to phase out the sale of new combustion engine cars and vans by 2035, and to increase the share of zero- and low-emission vehicles in the EU fleet.
To achieve this, the EU has proposed a number of measures to support the EV industry and consumers, such as:
- Increasing the CO2 emission standards for cars and vans by 55% and 50% respectively by 2030, and by 100% by 2035
- Revising the Alternative Fuels Infrastructure Directive to ensure the availability and accessibility of charging and refueling stations across the EU
- Providing financial incentives and subsidies for the purchase and use of EVs, such as lower taxes, tolls, and parking fees
- Investing in research and innovation to improve the performance, safety, and sustainability of EVs and batteries
- Promoting the circular economy and the recycling of EV batteries and components
The EU’s EV strategy is not only driven by environmental concerns, but also by industrial and strategic ones. The EU wants to boost its competitiveness and autonomy in the global EV market, which is expected to grow exponentially in the coming years. According to the International Energy Agency, the global EV stock could reach 145 million by 2030, and 230 million by 2035, under the current policies and pledges. The EU also wants to reduce its dependence on imported materials and components for EV production, especially from China, which dominates the supply chain of batteries, rare earths, and other critical raw materials.
China’s EV Strategy: Made in China 2025
China, on the other hand, has been pursuing its EV strategy for over a decade, as part of its Made in China 2025 plan to become a global leader in high-tech industries. China has invested heavily in the EV sector, providing generous subsidies, tax breaks, and preferential policies for EV manufacturers and consumers. China has also restricted the access of foreign EV brands to its domestic market, which is the largest in the world, accounting for over 40% of global EV sales in 2021.
As a result, China has achieved remarkable results in the EV sector, such as:
- Producing over 1.3 million EVs in 2021, up by 8% from 2020, and accounting for over 40% of global EV production
- Exporting over 300,000 EVs in 2021, up by 140% from 2020, and accounting for over 20% of global EV exports
- Developing over 800 EV brands, including leading ones such as BYD, NIO, Xpeng, and Li Auto, which are expanding their presence in overseas markets, especially in Europe
- Holding over 70% of the global market share of lithium-ion batteries, the most widely used type of EV batteries, and over 60% of the global patents for EV production
- Securing over 80% of the global supply of rare earths, and over 60% of the global supply of graphite, cobalt, and lithium, which are essential for EV batteries and components
China’s EV strategy is also motivated by environmental, industrial, and strategic factors. China wants to reduce its air pollution and greenhouse gas emissions, which are mainly caused by its reliance on coal and oil. China also wants to enhance its competitiveness and innovation in the global EV market, which is seen as a strategic industry for the future. China also wants to increase its influence and leverage in the global supply chain of EV materials and components, which could give it an edge over its rivals and partners.
EU-China EV Dispute: A New Source of Tension
The EU and China have been engaged in a complex and multifaceted relationship, marked by both cooperation and competition, especially in the fields of trade, investment, technology, and climate change. The EV sector has emerged as a new source of tension and rivalry between the two sides, as they vie for market share, innovation, and leadership in the green transition.
The EU has recently initiated an anti-subsidy investigation into Chinese EV imports, following a complaint filed by the European Association of Automobile Manufacturers (ACEA) and the European Automobile Manufacturers Association (EAMA), which represent the interests of major European carmakers such as Volkswagen, BMW, Renault, and Peugeot. The complaint alleges that Chinese EVs benefit from unfair state support, such as subsidies, tax breaks, preferential loans, and export credits, which enable them to undercut their European competitors and distort the market. The investigation, which could last up to 13 months, could result in the imposition of countervailing duties on Chinese EV imports, ranging from 8% to 30%, according to some estimates.
China has reacted strongly to the EU’s move, denouncing it as a protectionist and discriminatory measure that violates the rules of the World Trade Organization (WTO) and the principles of free trade. China has also warned that it will take countermeasures to defend its legitimate rights and interests, and to safeguard the stability and development of the global EV industry. China has also accused the EU of double standards, pointing out that the EU itself provides subsidies and incentives for its own EV sector, and that the EU’s Fit for 55 package could create new trade barriers for foreign EVs.
The EU-China EV dispute is likely to escalate in the coming months, as both sides are determined to defend and advance their interests and goals in the EV sector. The dispute could also spill over to other areas of the EU-China relations, such as trade, investment, technology, and climate change, adding to the existing challenges and difficulties. The dispute could also affect the global EV market and the transition to a low-carbon economy, creating uncertainties and risks for consumers, producers, and policymakers.