What can Chinese electric cars bring to Europe?

Recently, the European Commission organized member states to conduct a final vote on the issue of tariffs on Chinese electric vehicles, and received the so-called "effective" support, and the "boots of tax increases" are about to land. Despite the abstentions and objections of 17 member states, accounting for about 53% of the EU's population, the European Commission insisted on imposing tariffs. In fact, what China's electric vehicles bring to Europe is not risks and challenges, but new opportunities for green cooperation and new space for open innovation.

How can the EU get out of the predicament and achieve a "win-win" situation of free trade and industrial competition? This requires the wisdom to deal with external differences, as well as the courage to face up to one's own problems

1. Lower the price of electric vehicles, consumers can benefit

From the consumer's point of view, electric vehicles produced in China are of high quality and high price. According to a survey by the Germany Automobile Club ADAC, 59% of respondents would consider buying a Chinese electric vehicle, of which 83% believe that Chinese cars have a price advantage and 55% think that innovative technologies are attractive. The European automotive industry also believes that China-made electric vehicles have now reached the world's quality standards and the price is low, and the subsidy has little impact on the market, and the price advantage of China's electric vehicles mainly comes from economies of scale, advanced battery technology, raw material advantages, fierce competition in the domestic market and first-mover advantage.

Fundamentally, the absence of tariffs directly benefits European consumers. Due to the cost advantage, Chinese producers can still enjoy significant profit margins after deducting freight and customs duties. BYD's Dolphin costs 12,497 euros in China and 35,490 euros in Netherlands, 174% more. The Yuan PLUS (Atto 3 Comfort) is priced at EUR 17,923 in China and EUR 39,990 in Germany, representing a premium of 123%. In other words, in the face of tariffs of 17% to 35%, it is still possible for Chinese companies to make a profit, but the additional costs borne by European consumers cannot be transferred. The upcoming countervailing duty is bound to lead to higher prices for electric vehicles in Europe, and the Germany Handelsblatt said that the victims of the new tariff race will be consumers, who must get used to higher prices.

2. Promote the promotion of zero-emission vehicles and achieve the goal of green transformation

Promoting electric vehicles is essential for the EU to reduce carbon emissions from the transport sector and meet its climate goals. The EU has set a milestone of having at least 30 million zero-emission vehicles by 2030. However, despite the steady growth in EV use in Europe in recent years, reaching 6.7 million units in 2023, the rollout still needs to be accelerated. UBS said that between 2024 and 2030, Europeans will buy nearly 9 million fewer electric vehicles than expected, due to high prices, insufficient range and inadequate charging infrastructure. There is an "EV premium" in the European market: in 2023, the cheapest EV in Europe is 92% more expensive than the cheapest internal combustion engine car, while the "premium" in the Chinese market is minus 8%. In this context, China's imports of electric vehicles can be a key enabler for the EU's climate strategy.

China's electric vehicles also play a unique role in promoting "zero-emission" vehicles in the EU. Chinese companies have launched a variety of electric vehicle models priced below 20,000 euros, filling the gap left by traditional European automakers in the low-cost mass market, enabling consumers with lower purchasing power to buy electric vehicles for the first time, boosting the share of electric vehicles in the EU market and accelerating the energy transition in the transportation sector. Germany's Handelsblatt pointed out that European car companies do not have an advantage in low- and medium-priced electric vehicles, consumers would rather choose fuel vehicles, if the EU blocks Chinese products from entering the market, the electrification transformation of European cars will be slower, the Center for Strategic and International Studies (CSIS) pointed out that Western governments need to face a basic question: whether to recognize that Chinese electric vehicles have a place in their market? Do you see Chinese EVs as part of a global decarbonization effort? If the answer is yes, Chinese companies should not be "shut out".

3. Improve the quality of the automotive industry and take the right path of industrial competition

Whether the tariffs can truly enhance the competitiveness of European industries is at the heart of the tripartite dispute between the European Commission, member states and automakers. Protectionist views believe that tariff barriers can effectively support domestic weak industries, but some auto companies and researchers believe that the main problem of the European automotive industry is the adjustment and transformation of the industrial chain, and the model of tariff protection is not applicable. The driving force for innovation. The Germany Institute for Economic Research in Cologne said that if Chinese electric vehicles are indeed more efficient, it will be difficult to protect European companies even if tariffs are introduced.

In fact, successful trade policies should be synchronized with industrial policies to promote investment and innovation. According to the European Competitiveness Report, the European automotive industry is advantaged by the integrated supply chain of the EU single market and the high added value generated by intensive R&D investments; The rise of electric vehicles means that the technology investment, production process, and skill needs of automakers will undergo fundamental changes, and the automotive industry will also be deeply integrated with the digital value chain and emerging business models. These are all areas in which China excels, and China and the EU complement each other's strengths and have broad prospects for cooperation. "Free and fair trade is essential for a globally competitive European automotive industry, and healthy competition drives innovation and provides choice for consumers," the European Automobile Manufacturers Association said in a statement issued after the vote.

Rather than imposing tariffs, the EU should implement a comprehensive industrial strategy, including reducing transition costs, developing an action plan for the automotive industry, and establishing a zero-emission vehicle ecosystem. China can play an important role in the transformation of Europe's automotive industry. Germany's "Frankfurter Allgemeine Zeitung" believes that Europe can learn from China's experience in developing advantageous industries, including encouraging Chinese auto companies to establish joint ventures in Europe to build production capacity and build an integrated value chain.

Fourth, to maintain the reputation of free trade, the normative force is more powerful

Trade has always been a major driver of European competitiveness. Draghi said before the final tariff vote that the EU is an open economy, and more open than any other, with 50% of the EU's GDP coming from trade, about 37% in China and 27% in United States, so the EU "cannot build a protectionist wall."

Over the past decade, advanced economies that once championed free trade and welcomed imports have shifted to prioritizing domestic re-industrialization. Without norms that keep pace with the times and exchanges that move in the same direction, trade frictions are inevitable. If the EU can adapt to the trend and reality of economic development, resolve differences through consultations, and work with China to safeguard the international free trade order, it will certainly consolidate and strengthen the EU's image as a "defender of free trade". In fact, as major players in the global economy and the multilateral trading system, China and the EU have unique advantages and are expected to build a new international trade framework, set an example for upholding WTO rules, advocating open markets, and lowering trade barriers, so as to make the world's free trade rules more solid and clearer.

On October 8, European Commission Vice President Dombrovskis said in a question with the European Parliament that the EU will continue negotiations with China and may replace tariffs with price commitments and other means. This shows that the EU is also aware that there are only losers in tariff competition, but at present, the EU has "difficult to ride the tiger" and can only adopt the strategy of "fighting and talking". How can the EU get out of the predicament and achieve a "win-win" situation of free trade and industrial competition? This requires the wisdom to deal with external differences, as well as the courage to face up to one's own problems.

Source: "China Institute of Contemporary International Relations" WeChat public account

Author: Liu Yazhuo

Editor: Hu Liang

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