European carmakers are facing a looming trade war with China, accentuated by the increasing electrification of vehicles and the invasion of the European market by Asian models. This tension could seriously undermine the automotive industry, which accounts for almost 10% of all EU manufacturing. Anti-subsidy investigations into low-cost Chinese electric cars, new French restrictions and dependence on Chinese components underline the major challenges facing the European automotive industry.
Times aren’t getting any better for European carmakers, who were pouting last February after the European Parliament voted to put an end to combustion engines by 2035. Indeed, faced with the electrification of new models and the invasion of the European market by Asian models, there’s no room for complacency.
After a warning with the opening of an anti-dumping investigation against European brandy imports, Europe finds itself on the brink of a trade war with China. The automotive industry could be badly shaken. Vehicle exports play a vital role in maintaining Europe’s trade balance, with the automotive sector accounting for almost 10% of the European Union’s total manufacturing industry.
But with the rise of electrification over the past year, the future of the sector is uncertain, and European companies face significant challenges. China is flooding European markets with efficient, less expensive cars, and exports a significant proportion of the parts needed by the industry, while accounting for 60% of the world’s mining production of rare earths (specific metals essential to the manufacture of magnets). European budgets are putting pressure on government subsidies for the purchase of electric cars. Meanwhile, the US industry is propelled by the pioneering Tesla, subsidized by the Inflation Reduction Act (IRA).
Of course, all these elements are interconnected. European manufacturers need access to the Asian market, and some have even relocated part of their production to China. For its part, China’s domestic economy depends on European and American markets. A real headache…
The trade war may have begun
France recently tightened the criteria for granting subsidies for the purchase of Chinese electric cars, a decision that was followed by a European Union investigation into the same subject. A few weeks before the launch of this investigation, Paris had tightened the conditions for granting subsidies for the purchase of Chinese electric cars. In addition, the French capital introduced regulations targeting China by withdrawing purchase incentives for vehicles whose manufacture emits a specific amount of CO2.
Last September, the EU joined the dance. Ursula von der Leyen, President of the European Commission, suspecting that Asian companies were benefiting from illegal subsidies, announced an anti-subsidy investigation into low-cost Chinese electric cars. She explained that world markets are flooded with electric cars, whose prices are kept artificially low thanks to substantial state subsidies.
Meanwhile, in Europe, production facilities for batteries – essential and strategic components for clean vehicles – are currently under development. The underlying aim is to guarantee rapid production in order to capture a growing share of the electric mobility market.
China strikes back
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