The global EV market continued to grow in 2023, with more than 13 million units sold, up 35% year-on-year. China continued to lead the way, with more than eight million vehicles sold, up 37% year-on-year and accounting for approximately 60% of global EV sales. In contrast, sales growth in Europe was lower, with just over three million units sold, while the United States showed a remarkable 48% growth, reaching almost 1.5 million units sold.
The Chinese market: results of a good industrial policy
Chinese automakers have overtaken traditional industry leaders such as Germany and Japan. In 2022, sales of new electric vehicles in China increased by 82%. In the same year, China was responsible for 35% of global EV exports. The Chinese company BYD sold more units of these vehicles than Tesla during the fourth quarter of 2023. This rapid advance is closely linked to Beijing's national strategy to encourage the development of the electric vehicle industry. The development of electric vehicles developed in the country from the 90s onwards as an opportunity for China to establish itself as a power in this sector.
By 2023, more than half of the world’s electric vehicles were in China, establishing the country as the largest global market and producer. Between 2009 and 2023, the Chinese government has injected an estimated $230 billion into the industry, accelerating its expansion at a pace unmatched by its international competitors. China’s major automakers, such as BYD, SAIC-GM-Wuling, Geely, Nio, Xpeng, and LiAuto, have benefited greatly from the innovation and supply chain ecosystem that Chinese authorities have taken great care to protect and cultivate. China’s strategic position in the refining of rare earths, a key material in battery manufacturing, has greatly favored innovation and cost reduction in this key component of electric vehicles. The development of the necessary infrastructure by state planning has been fundamental to the increase in sales and the electrification of Chinese cities.
The European market: slowdown and external competition
In the European market, during 2023, sales of electric cars reached nearly 3,2 million, an increase of 20% compared to the previous year. However, the elimination of subsidies and the slowdown in demand have caused sales to fall considerably in 2024, especially due to the decline in demand in countries such as Germany or France. This slowdown has led companies such as Volvo to delay the abandonment of the manufacture of combustion cars, or Stellantis to slow down the production of electric vehicles, highlighting the production of the Fiat 500e at the Turin plant.
The fragile situation of the European automotive sector is aggravated by the emergence of Chinese electric cars. In 2024, it is estimated that sales of electric cars manufactured in China will represent 25% of the total, compared to 19,5% the previous year. Of this 25%, 11% corresponds to Chinese brands while the remaining 13% corresponds to Western and Japanese companies that manufacture in China. The substantially lower prices of Chinese models, 28% lower than their Western counterparts, have put the European Union and its member states on alert.
Tariff war: Dumping accusations and European disagreement
In June 2024, the European Union approved a provisional increase in tariffs on electric cars manufactured in China to a maximum of 38%, on top of the existing 10%. This increase is modest compared to the 100% tariffs imposed by the United States and Canada. The European Commission launched an anti-dumping investigation into the subsidies that the Chinese electric car industry receives from the authorities. The investigation found that public money was injected into the entire supply chain, from the extraction of raw materials to the production of batteries and the manufacture of cars.
Different provisional tariffs were applied depending on cooperation during anti-dumping investigations and other aspects. In the case of BYD, the tariff increase was 17%, in that of Geely, 4% and in that of SAIC, 20%.
The Chinese government has been accused of pursuing a “divide and conquer” strategy to increase the fractures in the already fragile common European strategy, pitting member states against each other. This can be seen in the opposing attitudes of countries such as Italy or France, which are declaring a very tough stance on imports of Chinese electric cars, and countries such as Spain or Germany, which are advocating for a reconsideration of the increase in tariffs.
During President Pedro Sánchez's recent visit to China, he declared that the European Union and its member states must reconsider their stance towards the increase in tariffs on electric cars manufactured in China. He warned of the need to avoid an escalation towards a trade war and positioned himself as an intermediary in the tensions between the Chinese government and the European Union.
In Germany, Chancellor Olaf Scholz has declared his willingness to continue negotiations with the Chinese authorities on the issue of electric cars, focusing the talks on areas where imports from China are harming European producers. The main pressure on the German chancellor to stop the introduction of tariffs comes from the German automotive sector. Car manufacturers such as Volkswagen, BMW and Mercedes-Benz have huge plants on Chinese soil that have benefited from Chinese government subsidies and favourable labour prices and lax tax regimes. Possible tariffs would be disastrous for exports of German brands made in China.
On October 4, member countries of the European Union backed a decision to impose tariffs on imports of electric cars. Despite opposition from five countries, notably Germany and Hungary, the affirmative vote of ten members and the abstention of twelve was enough for the initiative to succeed. Now, the European Commission has the power to approve the tariffs it deems necessary, which sources indicate would be the provisional tariffs already in place. However, the Commission has indicated that it is open to negotiations with the Chinese authorities to reach a mutually beneficial agreement that protects European electric car manufacturers. Hungarian Prime Minister Viktor Orban and car companies such as BMW have regretted the news, fearing a possible trade conflict with China.
China's response: concerns in livestock and automotive sectors
If the European Union decides to implement high tariffs on electric vehicles manufactured in China, it could trigger a trade war that would have significant repercussions for both economies. In response, China is likely to take similar measures, applying tariffs to European products, which could further escalate tensions between the two regions.
Chinese authorities have already launched anti-dumping investigations against the European dairy, pork and certain alcoholic beverages industries, such as brandy, in reaction to the provisional tariffs imposed by the European Commission. These sectors are relevant to trade relations between China and several European countries, including Denmark, the Netherlands, Belgium and Germany, but are particularly sensitive for Spain as regards the export of pork products. In 2023, Spanish exports of pork products to the Chinese market amounted to €1.223 billion, representing 20,33% of the sector's exports. This situation puts Spain in a delicate position, as it is the largest exporter of pork to China within the EU, making Spanish farmers particularly vulnerable to a possible escalation in trade hostilities between the European bloc and the Chinese government, which could seriously affect their economic viability and future in the international market.
The other major cause for concern is the possible tariff retaliation hinted at by Chinese authorities towards European motor vehicles.
The Chinese market currently accounts for a third of German car exports, underlining the critical importance of China-Germany trade relations. An increase in tariffs could trigger an earthquake in an automotive sector that is currently at its worst in years, with declining sales and increasing global competition. The already fragile state of the German economy could be severely damaged if the German flagship economic sector suffers the consequences of increased tariffs on one of its main export markets. In addition, the uncertainty surrounding these measures could affect investor confidence and job stability in the industry. Volkswagen, for its part, is already considering closing a factory in Germany due to its difficult financial situation, and such a closure would be its first on German soil in the company's history, marking a worrying milestone for the country's automotive industry.
Another area of concern is the negative impact that tariffs may have on energy transition goals. Many European consumers cannot afford local electric cars, making Chinese models a viable and affordable option to meet the ambitious net-zero emissions targets that have been set across the region. The relatively high prices of electric vehicles have been pointed out as the main barrier for consumers, limiting their adoption and putting progress towards more sustainable mobility at risk.
Department of Economics and Business Casa Asia