Editorial | Lower-priced EVs are set to be a major trade battleground

Chinese electric vehicle exports have supercharged tensions with the European Union, even as shipments have fallen recently in the face of an anti-subsidy probe and Western trade restrictions. The European Chamber of Commerce in China has likened deterioration in relations to “the unfolding of a slow-motion train accident”. The chamber says China’s focus on the supply side to drive economic growth has resulted in export of overproduction that crowds out domestic industries. It has called on Beijing to expand domestic demand and address concerns, such as market access for European firms, through high-level dialogues. This is likely to be high on the agenda during a European visit by President Xi Jinping in May.

Electric vehicles priced lower than rivals will be a major trade battleground. Tensions increased after Brussels launched an anti-subsidy investigation in October. Beijing views EVs, lithium-ion batteries and solar panels as drivers of exports and economic growth. But there are rising concerns that growth goals could be impeded by overcapacity problems as well as trade restrictions.

Meanwhile, in the first two months, China’s EV export volume to the European Union fell by nearly 20 per cent year on year – to 75,626 units, from 94,102 units. At the same time China’s EV exports to its Asia-Pacific partners under the Regional Comprehensive Economic Partnership (RCEP) rose 36 per cent, year on year.

Automotives is one of the EU’s core industries, accounting for 11.6 per cent of all manufacturing jobs. If China’s market share continued to expand, the impact could endanger livelihoods. China’s defence against claims of unfair trading practices is that every major economy is subsidising their EV industry – mostly to reduce carbon emissions. It argues its price advantage results from efficiency and productivity.

It will not be easy to bridge the gap in perception. China has already prepared for a long battle by diversifying its EV markets. Ultimately the EU wants China to open more of its markets to European business and give them more equal treatment.

Overcapacity often is cited to mask the real issue: The EU is worried its carmakers cannot compete with China in the new energy vehicle sector. The proportion of EVs in the overall market is still smaller than that of petrol vehicles. So if the switch to clean energy accelerates, theoretically there should not be an overcapacity issue. That said, China does have an issue. A stampede of capital into the EV sector could disrupt the market. In the end it is about whether environmental costs come before economic costs, and how fast new energy vehicles can replace conventional vehicles. The fate of Tesla, for example, depends partly on how Western countries embrace new energy – or resort to protectionism of the old.