On August 3, Wendy Cutler took part in a joint WITA-Asia Society Policy Institute webinar looking at the rise of Chinese electric vehicles. That discussion can be viewed here. Following is her most recent piece on this subject.
Amid resounding applause from the European parliament, Commission president Ursula von der Leyen recently announced the initiation of a subsidies investigation into China’s unfair trade practices in the electric vehicle sector.
This was a bold move in light of possible retribution against European car and other companies operating in China. Recalling how Chinese unfair and predatory practices led to the demise of the European solar industry, von der Leyen stressed the urgency for Europe to pre-empt a similar fate in the auto sector.
The EU’s move will hopefully lead US policymakers to evaluate their own policy tools and develop a proactive response.
Over the past decade, the Chinese EV industry has benefited from massive state subsidies and other government support. This paved the way for the country to become the largest global vehicle exporter this year, surpassing Germany and Japan. “New energy vehicles and equipment” was one of the 10 technology sectors targeted for global leadership in Beijing’s Made in China 2025 policy.
Moreover, China has strategically secured critical mineral deposits around the world needed for battery production, such as lithium. That means for several years Beijing has been able to dictate that EVs use Chinese-made batteries, which account for up to 60 per cent of the value of a car. While China has the world’s largest domestic automotive market at some 26mn vehicles, its EV companies are producing way more than the domestic market can consume — an excess of as much as 10mn a year, according to some estimates.
In many respects, the EV playbook looks similar to those followed by Beijing in developing its solar, steel and aluminium sectors. In those industries, massive subsidies led to overproduction and excess supply, saturating global markets and crippling international competitors. The oversupply of EVs has already found its way to Europe and many other corners of the world.
So far, the US has been spared an influx of Chinese cars due to a number of factors. First, the American tariff of 27.5 per cent (a 2.5 per cent toll on all auto imports plus the 25 per cent China import-specific one) is relatively high. Second, Chinese vehicles are ineligible for consumer EV tax credits under the Inflation Reduction Act, disadvantaging them in the US market. Third, geopolitical tensions are likely to have steered Chinese auto manufacturers away from the American market.
But there is no guarantee that this situation will continue, particularly as Chinese companies face rising pressure to offload their excess production. As a result, it’s in the US interest to act early.