The Rise of Chinese Electric Vehicles in Europe An Economic Analysis of Challenges and the EU’s
Written by Mathis Blanchard
The rapid ascent of Chinese electric vehicle (EV) manufacturers is intensifying trade tensions with both the United States and the European Union. In June 2024, the European Commission imposed provisional countervailing duties ranging from 17.4% to 38.1% on EVs imported from China, responding to what it sees as unfair subsidies that violate international competition rules. This decision followed the additional tariffs implemented in May by the Biden administration, which set a 100% rate on Chinese EVs and 25% on batteries. Such measures aim to counter what many perceive as China’s aggressive, interventionist industrial policy, which distorts global market competition.
According to Scott Kennedy of the Center for Strategic and International Studies (CSIS), the success of Chinese EVs is largely due to massive state support, enabling domestic companies to offer vehicles at highly competitive prices, both domestically and internationally. This article explores the key factors driving the competitiveness of Chinese manufacturers, the challenges European automakers face due to this heightened competition, and the EU's actions to create fairer economic conditions.
Strengths of Chinese manufacturers and European vulnerabilities
The Chinese government provides significant incentives for consumers, with buyer discounts and sales tax exemptions making up 66% to 87% of total support in 2022 and 2023. In 2022 alone, these discounts amounted to $7.4 billion, while tax exemptions totalled $30.3 billion. These policies have drastically reduced the cost of EV ownership for Chinese consumers, boosting local demand and enhancing the global competitiveness of Chinese manufacturers.
Furthermore, from 2009 to 2023, the government invested $4.5 billion in charging infrastructure and $25 billion in R&D, underscoring China’s ambition to position its manufacturers at the forefront of technological innovation. This state support allows
Chinese companies to offer vehicles at lower prices than their European counterparts, raising concerns about fair competition on the global market.
China also dominates the global battery supply chain, thanks primarily to industry giants CATL and BYD, who control 55% of the global market for EV batteries (Le Monde, 10 September 2024). Including other Chinese producers, the country commands around two-thirds of the market, far surpassing South Korean and Japanese competitors. This dominance allows Chinese manufacturers to offer lowercost batteries, enhancing their appeal in the midrange EV segment, which is particularly attractive to European consumers (Zhang, 2023).
“ Europe, by contrast, lags significantly in battery production. According to François Citton (Le Grand Continent, 29 November 2023), the EU accounts for only about 7% of global capacity, compared to China’s 76%”.
Mathis Blanchard
This dependency exposes European manufacturers to cost fluctuations and supply chain uncertainties, especially for critical materials such as lithium, cobalt, and nickel, which are largely controlled by China.
Citton also highlights the disparity in charging infrastructure. In 2022, China had 1.15 million charging stations compared to only 340,000 in Europe, making EV adoption easier domestically. This infrastructure gap underscores the challenges the EU has to face to achieve industrial and technological autonomy in this crucial sector for the energy transition.
The European Union response
To curb Chinese EV competition, the EU has introduced antidumping duties ranging from 10% to 35% on imports (Cougard, Les Echos, 2024). In response, China announced tariffs of 30.6% to 39% on European cognac and brandy, targeting French luxury brands like Martell, Rémy Martin, and Hennessy (Balenieri and Cougard, Les Echos, 8 October 2024). This trade escalation highlights rising tensions, with the risk that China’s response could extend to other strategic sectors for Europe.
Geopolitical risks associated with critical materials are another area of concern. According to Liang Yang et al. (2022), Europe’s reliance on resources such as lithium and cobalt creates a strategic vulnerability, particularly given that China controls much of these materials. They recommend diversifying supply through partnerships with resource-rich nations outside China’s sphere of influence, such as Australia, Canada, and Chile.
To bolster its autonomy and reduce its deficit, the EU has enacted policies under the European Green Deal and the “Fit for 55” initiative, which aims to achieve carbon neutrality by 2055. Key measures include the gradual phaseout of internal combustion vehicle sales by 2035.
The EU has invested nearly €6 billion through two Important Projects of Common European Interest (IPCEI), primarily financed by Germany, Italy, and France. These initiatives have supported the construction of gigafactories, such as the ACC facility in Douvrin, projects to increase battery energy density, and efforts to facilitate the recycling of critical materials, there by strengthening Europe’s value chain.
Thanks to these initiatives, Europe’s battery production capacity is on the rise.
“Projections indicate that Europe could reach 550 GWh by 2025 and 1,200 GWh by 2030, enough to supply 16 million vehicles per year.”
Mathis Blanchard
Data from Charrel (2022) in Le Monde suggests that by 2030, Europe could meet 30% of its battery needs. However , despite this progress, European firms only operate 3% of the world’s battery production capacity, revealing a continued dependence on foreign actors.
Technological innovation is another priority for the EU, with a focus on developing eco-friendly batteries and recycling critical materials. Cobb (2023) emphasises investment in research to develop more efficient and durable batteries, reducing reliance on Asian suppliers. In addition, the “Critical Raw Materials Act,” proposed on 16 March 2023, aims to reduce dependence by diversifying supply sources and establishing a European refining and production chain.
However, the European Court of Auditors warns of the challenges involved in developing such capacities. Europe remains heavily dependent on external sources for raw materials, with an average dependency rate of 78% for materials like cobalt, lithium, nickel, manganese, and graphite. This dependence represents a major vulnerability for Europe’s EV industry
Risks of retaliation and geopolitical trade-offs.
“I first followed an economics course in high school. It is where my interest in economics began. After that, I joined the University of Pennsylvania where I passed my undergraduate and a MBA in business with a focus on finance and macroeconomics. I really enjoyed the student life, as I was a member of the concert committee. With the other students we booked concerts for the university. It was very exciting as I was backstage, I had free tickets for awesome groups such as Patti Smith and the Grateful Dead! I had to manage contracts, promooe concerts and introduce the bands, and I did that for one and a half years. Almost all the students from this committee started working in the event industry. This experience was very instructive, but after a while, I started losing interest. I knew how to manage everything and there were not as many challenges anymore.
Fortunately, in my final year of undergraduate, I followed a PhD course in macroeconomics, which convinced me to continue in this field. Then, for my 4th year, I followed the PhD sequence in economics before joining MIT (Massachusetts Institute of Technology) to complete it. I really enjoyed being a PhD student at MIT and switched to doing microeconomics. Then I was an assistant professor at Harvard, and I stayed there more than 10 years, before moving to Northwestern University, near Chicago.
Since 2013, I have been back to MIT where I am half in the economics department and half in the business school.”
"The EU's protectionist measures may provoke retaliation from Beijing. China has already demons- trated its ability to target strategic European sectors”
Mathis Blanchard
By imposing tariffs on cognac and brandy. This pressure on key exports for countries such as France intensifies both commercial and diplomatic tensions.
Moreover, Europe’s reliance on China for critical materials exacerbates this vulnerability. The EU is highly dependent on China for resources like lithium (100%) and natural graphite (99%). In response, the European Commission proposes diversifying supply through strategic partnerships with third countries and enhancing recycling efforts.
Liang Yang et al. (2022) warn of an intensification of geopolitical competition for critical materials. China could restrict access to these resources, potentially jeopardising Europe’s energy transition, raising costs for manufacturers, and creating uncertainties in supply chains. A coordinated European strategy is essential to mitigate these risks.
Conclusion
The rapid rise of Chinese EV manufacturers, supported by aggressive state policies, poses a significant challenge for the European Union. Although the EU’s countermeasures are vital to protect its industry, they risk escalating trade tensions and exposing further vulnerabilities, especially in securing critical raw materials. To overcome these challenges, Europe must accelerate investment in battery production, diversify its supply sources, and strengthen technological innovation. Only a coordinated and strategic approach will enable the EU to reduce its dependency, strengthen competitiveness, and ensure a successful energy transition in the face of an increasingly assertive China on the global stage.
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