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Tariffs on Chinese electric vehicles (EVs) could spur investment in new European factories, which is good news, but they could also undermine Europe’s industrial base. To meet this challenge, the EU needs to strengthen and harmonize its investment rules, writes Tobias Gehrke.
Tobias Gehrke is a senior policy fellow at the European Council on Foreign Relations (ECFR).
Chinese investment in Europe Going down all the way, But those that still come here have changed their strategy, building new factories on greenfield sites, mostly along the EV value chain: battery cells, components, materials and final vehicle assembly.
That could soon change as EU leaders approved anti-subsidy duties on several Chinese electric vehicle importers. Tariff jumping – Business strategies to avoid import taxes by setting up shop in the customs country (or bypassing it) turkey, Moroccoor Thailand） – may flourish.
The first signs of this strategy are already emerging. Volvo, Leap Car and Wind Rose Announced to transfer some electric vehicle production from China to Europe. Chery, NIO, BYD and SAIC have established production bases in Europe; battery and equipment manufacturers such as CATL, Huayou Cobalt and Putai have also established production bases in Europe.
One thing is certain: Chinese production will only be commercially viable in Europe if high tariffs remain in place.
The benefits of investing in new factories in Europe seem great; creating local jobs, reducing import dependency, increasing competition for consumer products and markets, and accelerating the climate transition. So, what are the risks?
First, large-scale investment could entrench the dependencies that tariffs seek to alleviate.
Prices need to come down Consumer acceptance of electric vehicles But price wars can also squeeze smaller competitors out of the market, leaving only the biggest survivors. China’s dominance of key components of the electric vehicle supply chain gives it an element of differentiation, because losses at one end of the supply chain can be compensated at the other. This could entrench or even expand dependencies. Many European auto suppliers have already struggleand their number is decreasing.
The battery industry story is a cautionary tale. Despite government subsidies, even Europe’s largest battery makers are struggling. drain Their Battery and Battery Materials Given China’s use Less than 40% Half of the battery cell production capacity and half of the battery material production capacity. Battery import tariffs The commercial prospects of EU-made batteries are only 1.3%, and their competitiveness is becoming increasingly weak.
Second, because electric vehicles are essentially connected platforms on wheels, they present a host of potential safety issues.
Modern cars are constantly communicating and sharing data. The question of who controls these data flows No small matter The EU will soon launch a cybersecurity risk assessment for connected cars to address the serious risks of cybersecurity risks. warn EU intelligence agencies are investigating Beijing’s active influence efforts through its companies in foreign countries.
The EU also needs to back up its tariffs with common rules for protecting and promoting investment to manage these risks.
To achieve this, European governments could use their investment screening powers to mitigate risk. The problem is: few member states are willing (or able) to screen greenfield investments, especially in clean technology, even though WTO investment rules allow for such intervention.
A more unified investment review process is needed that treats the automotive industry’s transition to electrification as a public safety issue—not a difficult task given the industry’s 13 million employees, its key role in industry consolidation, and the expected massive deployment of data collection devices.
To encourage this, governments could offer tax and purchase incentives for electric vehicles, provided that the standards support the EU industrial base. Such incentivesthe conditions they use are quite different.
Even without an EU-style inflation-reduction bill, setting common standards for how member states use corporate value bonuses would give the bloc more influence in shaping markets to its interests.
The three common EU standards must combine protective and promotional measures.
First, foreign electric vehicle investors should commit to using some of their shares in local battery and materials suppliers to help ensure that Europe’s industrial base profits from the transition. If local supplies are not available, they should provide proof of this.
Second, incentives for electric vehicles should be tailored to their CO2 emissions. France is a pioneer, but a standardized EU-wide approach would provide support for the entire industrial base.
Third, and most difficult, standards for addressing cybersecurity risks must be harmonized. The EU’s risk assessment for connected cars is the most promising and urgent process. Whatever the outcome, EU-wide enforcement of standards is key (unlike the fragmented implementation of 5G standards).
Will Chinese electric vehicle investors bypass Europe and choose other destinations? At present, this seems unlikely. Europe still has huge market power: Almost 50% of Chinese electric vehicles are exported to the EU and the UK. Polls A survey of Chinese electric vehicle manufacturers showed that despite a hit to confidence, most still planned to build factories in Africa.
Tariffs are the first wave of Europe’s offensive, but the battle is far from over. Europe can only win the war for internal market competitiveness and consumer protection if it establishes common security and market standards that are not compromised by national interests.
(Editing by Rajnish Singh)
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