Beijing blasts EU probe as protectionist as China’s EV maker stocks slide. As Chinese EV manufacturer shares fell on Thursday, Beijing condemned the European Commission’s examination into China’s electric vehicle subsidies as protectionist and warned it would hurt economic and trade ties.

On Wednesday, European Commission President Ursula von der Leyen accused China of flooding global markets with cheap electric automobiles due to massive state subsidies.
Analysts warn of Beijing’s retaliation, and Chinese industry leaders argue that the sector’s competitive edge was not due to subsidies. The inquiry might end in punitive penalties.

The inquiry “is a naked protectionist act that will seriously disrupt and distort the global automotive industry and supply chain, including the EU, and will negatively impact China-EU economic and trade relations,” China’s Ministry of Commerce stated.

“China will closely monitor the EU’s protectionist tendencies and follow-up actions and defend Chinese companies’ legitimate rights and interests,” it said.

According to Eurasian Group experts, if Brussels imposes levies on subsidized Chinese EVs, Beijing may take steps to undermine European industry.

Analysts said the inquiry might hinder China’s battery suppliers’ capacity increase, but Chinese EV producers could shift to Southeast Asia, so the measure shouldn’t hurt them.

When Chinese EV companies expand abroad, Bernstein analysts warned in a client note that it may undermine their reputation.

As Chinese consumer demand slows and manufacturing overcapacity increases, firms export more.

Market leader BYD shares slumped over 3% in Hong Kong. Smaller competitors Xpeng (9868. HK), Geely Auto (0175. HK), and Nio (9866. HK) fell 0.6% and 2%, respectively.

SAIC (600104. SS), whose MG brand is Europe’s best-selling Chinese brand, slumped 3.4% in Shanghai-listed shares.

Neither Nio nor Geely commented on the EU inquiry, nor did BYD, Xpeng, or SAIC.

Battery company CATL (300750. SZ) shares declined by over 1% in Shenzhen. CATL did not reply to a comment request.

Stressed relationships
The European Commission launched the anti-subsidy inquiry without industry input as the EU navigates a tense relationship with China.

After Russian soldiers invaded Ukraine, Beijing’s connections with Moscow and the EU’s effort to reduce its dependence on the world’s second-largest economy and top trade partner have strained relations.

On Saturday, Chinese Premier Li Qiang met with von der Leyen on the sidelines of the G20 Summit in New Delhi and encouraged the bloc to create a non-discriminatory environment for Chinese enterprises and stability in Sino-EU relations as a “hedge” against global uncertainties.

The EV inquiry will set the topic and tone for bilateral discussions before the annual China-EU Summit, which will return to EU demands for more access to the Chinese market and a rebalancing of an “imbalanced” trading relationship.

The Chinese Chamber of Commerce to the EU rejected the inquiry on Wednesday and said the sector’s competitive edge was not due to subsidies.

On Thursday, China Passenger Car Association Secretary General Cui Dongshu stated on WeChat that he was “strongly against” the evaluation and encouraged the EU to assess the industry’s progress objectively and not “arbitrarily use” economic or trade measures.

He noted that China-made automobiles sold to Europe cost approximately twice as much as in China.

Growing Market Share
EU authorities think Chinese EVs undercut domestic models by 20% in the European market, pressuring European manufacturers to develop cheaper electric cars.

According to the European Commission, China’s proportion of European EV sales is already 8% and might reach 15% in 2025.

According to the Center for Strategic and Internal Studies, China exported 35% of electric automobiles in 2022, up 10% from the year before.

Most automobiles and their batteries were sold in Europe, while 16% were built in China in 2022.

CSIS statistics indicated Tesla (TSLA.O) is China’s biggest exporter. It exported 40.25 percent of Chinese EVs between January and April 2023, up from 36.5% in 2022.