Weekend Long Read: What to Do About the Influx of China’s Subsidized, Yet High Quality EVs

The global competition in the electric vehicle (EV) market has intensified, with recent actions taken by the European Union (EU) and the United States against Chinese EV imports [para. 1]. The EU introduced provisional tariffs ranging from 17.4% to 38.1%, following the U.S. imposition of 100% tariffs on EVs and 25% on EV batteries in mid-May 2023 [para. 1]. This escalation was anticipated, as indicated in a 2020 report that predicted increased tensions as Chinese exports grew [para. 2]. China's growing EV exports are both supported by significant government subsidies and improving in quality, causing complaints and regulatory actions from foreign competitors [para. 4].

China's industrial policy for the EV sector has employed diverse strategies, including regulatory changes and substantial financial backing, estimated at $230.9 billion from 2009 to 2023 [para. 5][para. 9]. Annual funding saw a significant increase post-2018 and has surged dramatically since 2021 [para. 6]. The support comprises five main types: buyer rebates, sales tax exemptions, infrastructure funding, research and development (R&D) programs, and government procurement [para. 8]. Changes in policy have seen reduced rebates in 2022 and elimination in 2023 to control industry expansion costs and focus support, though inconsistencies in data from the State Tax Administration (STA) pose challenges to researchers [para. 10][para. 11].

Additional support mechanisms, often underestimated due to data collection difficulties, include local rebate programs, low-cost resources, government investments in companies, and subsidies for the broader supply chain [para. 15][para. 16][para. 17][para. 18]. For example, Nio Inc. received significant municipal investment to foster its growth [para. 17]. China’s extensive governmental support exacerbates the competitive imbalance in the global market, though defenders argue subsidies have decreased over time relative to sales and per vehicle [para. 22].

The improved quality of Chinese EVs, often comparable to Western counterparts, has been pivotal in sustaining their market presence [para. 24][para. 27]. Innovations from independent Chinese manufacturers like BYD Co. Ltd., Geely Automobile Holdings Ltd., and Nio highlight the market’s evolution from joint ventures to self-reliant entities with enhanced engineering and design capabilities [para. 27]. These companies benefit from advanced R&D and infrastructure, contributing to their competitive products [para. 29].

The EV market's competition is not merely a result of subsidies but also driven by Chinese firms' significant advancements in technology and self-sufficiency [para. 33]. With substantial government support, these firms remain viable even in the face of overcapacity and intense domestic competition [para. 31]. This competitive edge challenges other countries' EV manufacturers, who face stricter budget constraints and less consistent state support [para. 32].

Policy responses vary between defensive measures, such as anti-subsidy investigations and tariffs, and offensive strategies aimed at fostering domestic EV industries [para. 42]. The U.S. and EU differ in approach, with the EU's anti-subsidy investigation targeting specific Chinese benefits, while the U.S. adopts broad tariffs framed as responses to intellectual property issues [para. 40][para. 41]. Future Western strategies must include fostering talent, investing in R&D, enhancing infrastructure, and incentivizing both production and consumer adoption of EVs to counterbalance China’s advancements [para. 45][para. 48].

Western governments face a critical decision on integrating Chinese EVs into their markets and the global decarbonization effort [para. 50]. Coordination among the U.S., EU, Japan, and South Korea, alongside aggressive domestic industry development, is essential to achieving a balanced and competitive global EV market [para. 52][para. 53]. Balancing fair competition with national security and market access standards is crucial for future trade and industry frameworks involving both Western and Chinese EV producers [para. 54].