BEIJING, September 14 (AsianFin)— The European Union (EU) kicked off an investigation into made-in-China electric vehicles (EV) in the name of protection from market distortion.

Credit：Visual China

European Commission President Ursula von der Leyen announced EU’s executive body is going to launch an anti-subsidy probe into EVs from China on Wednesday. EV sector is a crucial industry for the clean economy, with a huge potential for Europe, but “global markets are now flooded with cheaper Chinese electric cars”, and their price is “kept artificially low by huge state subsidies”, which is distorting European market, von der Leyen said in her state of the union stress to the European parliament. Head of the executive arm said Europe is open for competition, not for a race to the bottom. While stressing EU would defend itself against unfair practices, she cautioned “it is vital to keep open lines of communication and dialogue with China”. The official reiterated de-risking, instead of decoupling, from China. This will be her approach with the Chinese leadership at the EU-China Summit later this year, von der Leyen said.  

The European Commission will decide whether to impose tariffs more than the current 10% standard rate for cars in the coming 13 months. The investigation that could lead to tariffs raised concern about retaliation from China, the world’s largest EV market. The possible tariff will affect not just Chinese automakers but also foreign brands that produce vehicles there such as Tesla, Renault and BMW.

China exported 727,000 new energy vehicles (NEVs) from January to August, more than doubling from the same period last year, China Association of Automobile Manufacturers (CAAM) estimated. China’s share of EVs sold in the EU has risen to 8%, which are on average about 20% cheaper than EU-made ones, and could hit 15% in 2025, according to the European Commission.

EU’s probe may have triggered a major battle. The move may result in tariffs close to the 27.5% level already imposed by the U.S. on Chinese EVs, Bloomberg cited people familiar with the matter. EU is just starting the probe at the moment, and it has high uncertainty about whether it could take further actions or when those measures would come into effect, the state-run newspaper Shanghai Securities News cited industry insiders later Wednesday.

The anti-subsidy probe has no doubt to be a renewed threat for Chinese manufactures that are preparing for sales expansion in Europe with competitively priced EVs, such as BYD and Nio. At home, Chinese automakers are still under pressure of a new round of price war.

Tesla announced on August 14 that it reduced the starting prices for certain Model Y long-range and performance versions by RMB14,000 (US$1,935), or down 4.5% and 3.8%, in China. Following the second round of price cuts in the second half of the year, two versions now cost as low as RMB299,900 and RMB349,900, respectively. Besides Tesla, at least 10 Chinese automakers announced price cuts for their EVs in August. Leapmotor announced price cut between RMB10,000 and RMB20,000 that month, and Changan Ford offered promotional package including one-time price cut of RMB40,000. Zeekr that month slashed price by RMB30,000 to RMB37,000.