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Europe and China are on a collision course in electric cars

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Great Wall Motor was the first Chinese automaker to respond to the European Commission’s investigation into the alleged practice of state subsidies in the electric vehicle sector. The company, which complained of the short time available to respond, explained that it intends to build factories in the European Union (it is choosing the location) and called for a “free and open trade environment.” The Chinese want to avoid European tariffs in the electric car sector, and have criticized Brussels, which launched an official investigation into Chinese brands in October.

The firing was made on September 13 by the commission’s chairwoman, Ursula von der Leyen, who accused Chinese companies of distorting the market. The speech was welcomed by the European People’s Party (the center-right family in the European Union), to which von der Leyen belongs, and by Germany, which fears negative effects on its industry and exports.

The European investigation has the potential to create a trade conflict between the two blocs. Among the top ten sellers of electric vehicles there are at least four Chinese companies, including the second and third largest in the world. Beijing does not hide its ambitions in high-tech sectors, such as semiconductors, industrial robots, artificial intelligence, or smart cities. China has achieved a dominant position in the field of electric cars, which threatens European automakers, whose delay in transitioning to electricity may mean losses in market share. Moreover, Chinese manufacturers have surplus production and have increased their exports of electric vehicles to Europe.

The investigation into Chinese government support began on October 4, initiated by the commission itself. Little is known about the existing evidence or whether falling prices for Chinese auto imports are a result of productivity or innovation, as some market operators say. The European Union will be divided over this issue, because the investigation concerns France above all else.

The Chinese government has already responded, complaining about the short time given to bilateral consultations and, according to Beijing, about the lack of adherence to World Trade Organization rules. It is up to Brussels to prove that there are harmful subsidies and there are deadlines to impose punitive tariffs, which would set the two blocs to clash in the summer of 2024.

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Sales are on the rise

Sales of electric or hybrid cars are on the rise across Europe. In the first half of the year, in Germany, this sector already represented 21.7% of the total number of new private vehicles. Portugal’s value was a few tenths higher than Germany’s. The share of Chinese manufacturers is still limited, less than 2% of the total, but brands are starting to appear with cheaper models, so their growth should accelerate.

France is considering providing purchase support to European manufacturers only, and Germany changed its incentives last year, without stopping tram sales. This year, subsidies for the purchase of hybrid cars were removed and this sector declined sharply, which was compensated for by the adoption of battery-only vehicles.

The European Union has created favorable conditions for the expansion of electric technology, especially with the decision to ban the manufacture of cars with combustion engines, starting in 2035, which is the technology in which European manufacturers were the most advanced. The European Union has sought to support the purchase of vehicles and support the expansion of the charging network. Last month, the German government announced public spending of €1.8 billion to fund this charging network, arguing that the market alone cannot solve the constraints.

Berlin fears that drivers’ concerns about the lack of charging stations on the roads will slow down the pace of adoption of electric cars. The support funds 8,000 fast charging stations in 900 sparsely populated locations across the country. This measure has been approved by Brussels, which in turn has an ambitious program to expand the European network: full coverage of major roads and more transparent payment systems.

The Chinese threat

Without tariffs, Chinese industry can benefit from these investments. As the New York Times recently wrote, an electric car company (NIO) loses $35,000 for every car it sells. This would not be possible without generous subsidies. The company employs 11,000 workers in research and development, but sells only 8,000 vehicles annually. This will change rapidly due to the construction of new ultra-modern factories. Production is automated: At one facility, 30 employees can produce 300,000 electric motors per year.

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The American newspaper reported that NIO’s losses amounted to $835 million between April and June. When financial difficulties occurred, in 2020, the local government stepped in to buy 24% of the shares. It was also possible to obtain large loans with the help of a state bank.

Manufacturers like these are considered a threat to European manufacturers, both because of the innovations they offer, especially in batteries with greater autonomy, but also because of industrial advances in manufacturing. Chinese electric vehicle exports have grown by 850% in the past three years, especially to Europe. On the other hand, these companies claim that they are producing high-quality products and accelerating the transition to electric mobility, which will make it possible to achieve greenhouse gas emission reduction goals more quickly.

The scenario appears to be the opposite for European industry. The Chinese are strong in factory robotics and battery chemistry, as well as manufacturing. Moreover, Beijing has a significant presence in the raw materials needed for the energy transition, specifically lithium, a crucial metal for electric cars.

The price of lithium has declined in recent weeks, but the profits of the Chinese companies that control the market remain strong. The reasons for the decline in prices are not clear. Analysts are talking about electric car sales in China being lower than expected (the economy is slowing), which in turn helps explain the increase in Chinese exports. Over the next decade, global demand for lithium is expected to increase at an annual rate of 20%, and several countries, including Portugal, are trying to get into this space. In batteries, worldwide, three-quarters of the large factories planned for 2030 are from companies in China.

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Australia is the world’s largest lithium producer, but China dominates refining, i.e. the production of lithium carbonate that serves as a key raw material in batteries. The Chinese control 60% of the world’s refining operations, and an even larger percentage of car battery production. The Europeans and Americans want to avoid dependency, but they need several years for their mines to be able to operate, and there is also the harmful environmental impact of refining, in addition to the high consumption of water and energy. The Russians had a role in the market, but Western sanctions marginalized them.


Chinese industry benefits from lower production costs (steel, wages, electronic components) and exports strongly, although the US market is more difficult, due to restrictive tariffs. In just a few months, Chinese industry has conquered the Russian market, which Western brands abandoned after the invasion of Ukraine. An additional advantage for the Chinese in Europe is the fact that they have bought European brands, such as Volvo or MG.

Competition in this sector includes American, European and Chinese brands, as well as Japanese and Korean brands. The Chinese company BYD, for example, is close to surpassing the sales of the American company Tesla, which led the first phase of expansion in electric cars. Globally, the two brands are expected to sell about 1.8 million electric vehicles this year.

In 1995, BYD was a battery manufacturer. Its founder, Wang Quanfu, 57, the son of peasants, studied chemical engineering and began his career copying Japanese batteries. ? What is the secret of success The entrepreneur broke down the battery manufacturing process into simple steps, each of which could be completed by low-skilled workers. Over the past decade, the company has focused on electric vehicles. After facing difficulties in 2019, sales quadrupled between 2020 and 2022.

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