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Innovation is key for a fair competition with Chinese electric vehicles

The European Commission has formally launched an anti-subsidy investigation into the imports of battery electric vehicles (BEV) from China.

The investigation was first announced by the President of the Commission, Ursula von der Leyen during the State of the Union speech and it will determine whether BEV value chains in China benefit from illegal subsidisation and whether this subsidisation causes or threatens to cause economic injury to EU BEV producers.

If both claims are proved to be true, the investigation will proceed and it will examine the possible consequences on importers, users and consumers of electric vehicles in Europe.

China: from a net importer to the world’s largest exporter of cars

These numbers are indeed expected to rise as in 2022 EV sales in Europe increased by more than 15 per cent compared to 2021 (in other words, a total of 2.7 million EVs sold across the continent), as reported by the International Energy Agency (IEA). Europe is in fact the world’s second-largest market for electric cars after China, accounting for 25 per cent of all electric car sales and 30 per cent of the global stock.

China itself has turned from a net importer into the world’s largest exporter of cars. According to investment bank and financial services company UBS, BYD and other leading Chinese OEMs are set to dominate the global automotive market with high-tech, low-cost EVs for the masses, accelerating worldwide EV adoption. And even with growing trade barriers in mind, there is a sustainable approximately 25 per cent cost advantage for BYD over legacy competitors, bearing the potential to disrupt legacy OEMs on their home turfs.

However, Ms von der Leyen is not giving up on a possible EU’s leadership in the automotive industry.

“The electric vehicle sector holds huge potential for Europe’s future competitiveness and green industrial leadership,” she said. “EU car manufacturers and related sectors are already investing and innovating to fully develop this potential.”

And this is especially true after the US launched the Inflation Reduction Act, which includes subsidies worth 23 billion US dollars for the sustainable and innovative development of the transport sector (mainly batteries and EVs). If the competition and the trade with China should also be proved unfair, the competitiveness of Europe would be definitely put at risk.

European companies raise concerns about China’s business environment

“Electric battery vehicles are crucial for the green transition and to meet our international commitments to reduce CO2 emissions,” commented Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade. “This is why we have always welcomed global competition in this sector, which means more choice for consumers and more innovation. But competition must be fair. Imports must compete on the same terms as our own industry.”

The EU-China trade relationship is one of the biggest in the world and critical for both sides, with a total trade in goods last year that reached 857 billion euros. Yet, according to what Mr Dombrovskis said at a recent press conference during his visit to China, European companies are raising a number of concerns about the business environment.

Specifically about the EV sector, a recent paper by the European Union Chamber of Commerce in China, showed that Beijing is lacking a clear roadmap when it comes to curb emissions from the automotive industry and a stable and predictable regulatory environment for manufacturers. Achieving carbon neutrality in this sector will require close collaboration between policymakers and upstream and downstream suppliers, in order to develop practical and implementable policies for zero-emission cars.

Aligning standards on battery recycling and boosting innovation

“The push to decarbonise could be boosted by aligning international standards between China and the EU on battery recycling,” read the paper. “At the moment, China focuses on certification methods and circulation rules, whereas the EU places more emphasis on recycling ratios and utilisation rates.”

Indeed, today China performs around 60 to 90 per cent of the refining and processing of most minerals. According to the IEA, sodium-ion batteries witnessed a leap forward in early 2023, with plans for production capacity exceeding 100 GWh, primarily concentrated in China. Also, the vast majority of recycling capacity is located in China. However, as Jason Bordoff, Founding Director of the Center on Global Energy Policy at Columbia University pointed out, “China’s current dominance of mineral supply chains is not in possessing the resource—like Saudi Arabia’s or Russia’s geological abundance of oil—but in the refining and processing of minerals mined elsewhere.”

Thus, the keyword is innovation. By investing in innovative technologies and solutions, Europe (and the rest of the world) can also catch up with competitive China, adding something else to the table and contributing to a sustainable car industry by 2035, when the sale of new passenger cars and vans using internal combustion engines (ICE) will be officially banned.

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