China’s bid to penetrate the European market with its heavily subsidized Electric Vehicles (EV) is facing a mounting stumbling block as the European Union (EU) announced its intention to launch an investigation into subsidies that China provides to electric vehicle makers.

This was disclosed by the European Commission President Ursula von der Leyen, as concerns grow that the aid is harming European companies. “Global markets are now flooded with cheaper Chinese electric cars, and their price is kept artificially low by huge state subsidies. This is distorting our market,” European Commission President Ursula von der Leyen told EU lawmakers in Strasbourg, France.

“As we do not accept this distortion from the inside in our market, we do not accept this from the outside. So, I can announce today that the commission is launching an anti-subsidy investigation into electric vehicles coming from China.”
Ursula von der Leyen

Meanwhile, China’s leaders have helped make the country the biggest market for electric vehicles by investing billions of dollars in subsidies to get an early lead in what is seen as a promising industry.

Global automakers face growing competition in their home regions from Chinese brands that are taking market share. Electric vehicle makers including BYD Auto and Geely Group’s Zeekr unit began sales this year in Japan and Europe. Geely also owns Sweden’s Volvo Cars and its all-electric luxury brand, Polestar.

Europe Open to Competition

That notwithstanding, von der Leyen said “Europe is open to competition but not for a race to the bottom. We must defend ourselves against unfair practices”.

While the share of e-car registrations in the EU trebled to 12% of the total between 2019 and 2022, the monthly market share averaged around 13% this year in the seven months to July, data from the European Automobile Manufacturers’ Association shows.

This is partly thanks to a push from non-European players. While Tesla’s (TSLA.O) cars have outsold all other brands this year, Chinese marques like BYD (1211.HK), (002594.SZ) have increased their collective market share in Europe to 8%.

The average level masks huge discrepancies across the region. While early EV adopter Norway is close to eliminating combustion engines, other countries are very far away: in Italy, Europe’s fourth largest market, battery rides made up just 3% of the total in July.

Initial national data for August suggests an increase in EV sales, but the long road ahead has led industry executives including BMW (BMWG.DE) CEO Oliver Zipse to question the European Union’s ability to hit its green target. It is estimated that, by 2030, the share of EVs in Europe may still only be 40%.

However, governments could speed up EV adoption through purchase subsidies and tax incentives to buyers, like Norway did. But the level of aid can vary. Countries like Latvia and Bulgaria are offering just tax sweeteners. Meanwhile states including both Britain and Germany have started to roll back support schemes.

While the EU is adopting a strategy to limit the influx of Chinese EVs, more competition from Chinese carmakers could be beneficial to consumers because it will help bring down prices of electric vehicles in Europe. It will force Western players to keep cutting costs to avoid losing too much market share, boosting overall e-car adoption.