EU weighs EV subsidies to counter Chinese dominance in auto market
By willowt // 2025-01-29
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  • The European Union is considering introducing pan-European subsidies to bolster its electric vehicle (EV) industry and protect domestic car manufacturers from cheaper Chinese imports.
  • The proposed subsidies aim to counter the threat posed by Chinese EVs, which could cost European automakers up to €7 billion ($7.7 billion) annually in lost profits by 2030, according to a recent Allianz Trade study.
  • The plan faces significant hurdles, including compliance with World Trade Organization (WTO) rules and the challenge of ensuring that subsidies do not inadvertently benefit Chinese manufacturers.
  • The EU's efforts are part of a broader strategy to support its green industry and ensure competitiveness in the global market, including updating capacities of European carmakers to meet global demand for EVs.
  • Teresa Ribera, the Commission’s Executive Vice-President, emphasized the need for a unified approach and ruled out delaying the 2035 deadline for ending the sale of new internal combustion engine vehicles.
The European Union is considering a bold move to bolster its electric vehicle (EV) industry by introducing pan-European subsidies, a response to the growing threat posed by Chinese automakers. The proposal, discussed at the World Economic Forum in Davos, Switzerland, aims to protect Europe’s domestic car manufacturers from being undercut by cheaper Chinese imports. This development comes as projections suggest that Chinese EVs could cost European automakers up to €7 billion ($7.7 billion) annually in lost profits by 2030, according to a recent Allianz Trade study. The EU’s potential subsidy scheme underscores the bloc’s determination to maintain its competitive edge in the global automotive market, a sector that contributes significantly to its economy. However, the plan faces significant hurdles, including compliance with World Trade Organization (WTO) rules and the challenge of ensuring that subsidies do not inadvertently benefit Chinese manufacturers.

The Chinese challenge: A threat to Europe’s auto industry

The rise of Chinese EVs has sent shockwaves through Europe’s automotive sector. Chinese automakers, buoyed by substantial government subsidies, have been able to produce EVs at lower costs, enabling them to offer competitive prices in international markets. This has led to a surge in Chinese EV imports into Europe, threatening the profitability of domestic brands. According to the Allianz Trade report, Chinese EV imports could cost the EU over €24 billion ($25.2 billion) in economic output by 2030, equivalent to 0.15% of the bloc’s GDP. For automotive-dependent economies like Germany, Slovakia and the Czech Republic, the impact could be even more severe, with potential GDP losses of up to 0.4%. “The stakes are high for Europe’s automotive industry: four out of five cars sold in Europe are assembled locally,” the report noted. “Europe is also the world’s export powerhouse in the sector, with car trade generating between €70 billion and €110 billion in trade surplus for the European economy every year over the past decade.”

A unified approach: EU subsidies vs. fragmented national programs

In response to the growing threat, the European Commission is exploring the possibility of implementing a pan-European EV subsidy scheme. Teresa Ribera, the Commission’s Executive Vice-President, emphasized the need for a unified approach during her remarks at Davos. “It makes sense to see how we could figure out in a pan-European perspective, how to facilitate the measures instead of going through national subsidies,” Ribera said. She warned against a fragmented approach, where individual member states might adopt conflicting policies, leading to a “race where we could be confronting one national model versus another one.” Currently, EV incentives vary widely across the EU, with some member states offering no purchase subsidies at all, according to the European Automobile Manufacturers’ Association. A coordinated subsidy program could help level the playing field and stimulate demand for European-made EVs.

Navigating WTO rules and the road ahead

While the proposed subsidies aim to support European automakers, they must comply with WTO regulations, which prohibit measures that unfairly favor domestic producers or hinder international competition. Designing a subsidy scheme that benefits European manufacturers without violating these rules will be a delicate balancing act. Ribera acknowledged the complexity of the task, stating that there is a “complicated balance” to be struck between rapid electrification and ensuring that European brands can meet the demand for EVs in terms of both quantity and quality. The EU’s efforts to support its auto industry come at a time when the sector is undergoing a significant transformation. The bloc has set a 2035 deadline for ending the sale of new internal combustion engine vehicles, a move that has been met with mixed reactions from automakers. While some have embraced the transition to electrification, others have expressed concerns about the feasibility of meeting the ambitious targets. Ribera ruled out delaying the 2035 deadline, stating that the industry needs “predictability and clarity.” However, she indicated a willingness to be flexible on annual EV sales targets and the fines carmakers face for missing them.

A broader strategy for Europe’s green industry

The proposed EV subsidy scheme is part of a broader strategy to support Europe’s green industry and ensure its competitiveness in the global market. Ribera highlighted the importance of updating the capacities of European carmakers and helping them catch up with global demand for EVs. “Europe’s carmakers needed a comprehensive view on how to update their capacities and to catch up in what is already being demanded worldwide,” she said. Beyond the automotive sector, Ribera expressed a willingness to explore additional measures to benefit European industry, including local content requirements to shield European manufacturers from foreign competition. As the EU navigates the challenges posed by Chinese competition and the transition to a greener economy, the proposed EV subsidies represent a critical step in safeguarding the future of its automotive industry. However, the success of this initiative will depend on the bloc’s ability to strike the right balance between supporting domestic producers and adhering to international trade rules. The stakes are high, and the road ahead is fraught with challenges. But for Europe’s carmakers, the fight to remain competitive in an increasingly electrified world is one they cannot afford to lose. Sources include: San.com FT.com Reuters.com
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