Electric Cars - The numbers, contradictions and risks of the Chinese invasion

For some time there has been talk of electric cars produced in China and ready to invade the European market. However, the invasion is already underway and this is demonstrated by the elaborations of the German think tank Merics, which warns of a paradoxical contradiction: it is not the Chinese manufacturers that fuel exports to the Old Continent, but the European and American companies themselves.

The numbers. In their coldness, the figures speak for themselves. Last year, Europe became the main destination for electric “made in China”: the Dragon’s battery-powered cars were exported to the world 555,041 and 40% (over 222,000) were absorbed by European markets, where 10% of total electrical sales are now represented by Chinese products. “Exports of electric vehicles to the Union have not grown because cars are better, but because European and US manufacturers are converting to the production of electric vehicles in China, also for the European market”, warn Merics experts, recalling how western builders stepped up investment in Beijing later on the relaxation of the rules on joint venturesand underlining the decision of Renault, BMW or Mercedes to develop and produce in China models for global markets, such as the Dacia Springthe Mini electric or the Smart.

The Chinese “distortions”. But what is the reason for the strong “rise” of Chinese electricity production? The think tank speaks explicitly of “highly distorting” industrial policy measures by Beijing. “To spur the development of a domestic electric vehicle industry, the government has combined granting subsidies with restricting market access for foreign-made cars and batteries. This means that global exports of ‘made in China’ electric vehicles – which are likely to increase in the next few years – represent a challenge for market-based competition ”and therefore on the principles of Western capitalism. Specifically, there are three main “distorting” measures. First, China tied subsidies to local production, which in turn was “conditioned on the transfer of key electric vehicle technologies to Chinese competitors”. Furthermore, Beijing has “excluded foreign battery companies from its domestic market to help domestic companies” conquer the value chain. Finally, the Chinese central and local authorities provide “low cost capital”, through investment funds or the granting of special concessions in terms of energy tariffs, land, licenses and approval procedures.

The implications. That said, the think tank believes that the “strong export growth” is destined to continue over time as more and more companies will focus on exports to offset the slowdown in domestic demand linked to the gradual elimination of the purchase incentives guaranteed by Beijing. “In this context – warns Merics -, Europe is a particularly interesting target due to currently low trade barriers, a well-developed charging network and high subsidies for the purchase of electric vehicles”, including imported ones. All this has serious implications for the economy and the automotive sector of the Old Continent, starting with trade exchanges destined to be completely disrupted to the benefit of China. The European Union, where the car represents 10% of exports, a third of the trade surplus, 7% of GDP and 10% of manufacturing employment (data as of 2019), risks not only becoming a “rapidly” net importer of electric vehicles of the Dragon, but also to face a lower production of cars, particularly if European manufacturers use China as a hub for exports to other countries. Therefore, Made in China “puts Europe’s jobs, investments and innovative capacity at risk”. Not only. The strong integration between the various countries is also in danger (one third of the production of each is linked to the activities of another), as well as the possibility of generating retraining and relocation opportunities for workers, perhaps in batteries.

We need an answer. Merics therefore recommends that European institutions respond to the Chinese threat, taking into consideration the use of trade defense instruments such as the increase in tariffs (currently at 10%, compared to the 27.5% imposed by the United States), even if in this case “significant turbulence in the already strained EU-China relations” would be triggered. However, the experts conclude, what happened in the European photovoltaic panel industry, “now dominated by Chinese producers thanks to a long history of distorting practices”: the costs of inaction, essentially doing nothing to avert or contain the threat , could be very high.

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