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Europe is struggling with the new car brands from China, which receive generous state support to entice European customers. But how fair is the competition if the cars are sold below cost price and are therefore much cheaper than an electric Volkswagen or Renault? The EU is launching an investigation.
You will have noticed that Chinese car brands are flooding the market with their electric models. Aiways, BYD, LotusJAC, Lynk & Co, MG, Polestar, Seres, Xpeng, Zeekr: the list continues to grow. The European Commission also got wind of it.
Ursula von der Leyen, President of the European Commission, spoke clearly in her annual ‘state of the union’. “The price is kept artificially low by enormous state subsidies. This disrupts our market,” von der Leyen said. She called the Chinese practices “unacceptable”.
Electric cars below cost price
Von der Leyen announced that the EU will start an investigation into the benefits that Chinese brands receive from the government. Unlike in Europe, the ties between car brands and the state are close in China. The rulers in Beijing are furiously offering subsidies to keep the price of a Chinese electric car as low as possible; even below cost price.
Not necessarily good news for BMW and Volkswagen
“Europe is open to competition. Not for one race to the bottom,” Von der Leyen told the European Parliament. This seems like good news for European manufacturers, but it is not necessarily so. The investigation could lead to Chinese distrust and ultimately even to a trade war. And that is not in the interest of the European economy. For the German car industry in particular, turnover in China is crucial to achieve positive results. A trade war would be bad for brands like BMWMercedes and Volkswagen.
The fact that the EU risks such a war shows how seriously Von der Leyen takes unfair competition. The figures confirm her concerns. The share of Chinese cars in new sales is currently 8 percent. That was 6 percent last year and 4 percent in 2021. The share has already doubled in two years.
A fierce price war is raging in China itself, due to a sharp decline in consumer demand for new cars.