Redirected Chinese EV Exports: The Chilling Effect of the EU’s Anti-subsidy Investigation

Angelo Krueger and Fernando Martin, 9 June 2024

Even before the announcement of possible provisional import duties on Chinese exports of EVs to the European Union, there is evidence that Chinese EV producers are redirecting exports to emerging markets—in particular to Brazil, Kyrgyzstan, and South Korea.

Properly measured, China’s share of the fast-growing EU EV market—especially the share supplied by Chinese-owned firms—was never that large.

According to expert legal opinion we’ve consulted, if the European Commission (EC) decides to impose provisional import duties on subsidised Chinese EVs in July 2024, then it must disclose its intention to do so in the coming week.

The EC is under no obligation to impose provisional duties, in which case exporters of EVs from China will learn in the autumn whether final duties will be imposed.

Trade analysts have long shown that investigations into unfair trading practices can have chilling effects on imports, even if no tariffs are ultimately imposed. Evidence is mounting that this is likely the case for current Chinese EV exports to the EU.

Read more: How China's EV Boom Is Reshaping Global Marke

According to Trade Data Monitor, 32% of global Chinese EVs exports ended up in the EU during Q1 2024. This is down from 42% in the comparable period in 2023. Over the same time frame, Chinese EV exports to Brazil rose 4.5 percentage points.

Kyrgyzstan and South Korea each saw ~3.5 percentage point rises. The rise in Chinese EV exports to these 3 markets during Q1 2024 was 2.6 times larger than the fall in Chinese EV exports to the EU.

Second, one implication of recent Financial Times coverage of new EV car registrations in Western Europe during the first 4 months of 2024 went unreported.

The headline was that Chinese EV registrations jumped 23% over the comparable period last year. The average monthly number of new registrations was nearly 30,000 in the first 4 months of this year.

This is below the monthly average of Chinese EVs imported into the EU during 2023, which stood at over 36,000 -- indicating a possible chilling effect. Alternatively, maybe Chinese EV registrations are down because they’ve been imported but remain unsold?

Read more: Are Chinese corporate subsidies the only policy to influence incentives to export EVs to the EU?

Unexpected demand falls in some EU members—recall a German subsidy scheme was abruptly scrapped in December—could also be a contributing factor.

The potential imposition of provisional duties affords an excellent opportunity to reassess the Chinese EV footprint in the EU.

Here it is important to distinguish between stocks and flows of EVs. Table 1 reports the total number of registered EVs in Europe (a stock) and the importation of new Chinese EVs into the EU market (a flow).

From 2019 to 2023 the number of EVs registered in the EU has risen by 10 million. The total number of new registrations is probably higher as some EVs may have deregistered after being withdrawn from use.

From 2019 to 2023 a total of 1,041,786 Chinese EVs were exported to the EU. This implies that no more than 10.42% of EV registrations in the EU since 2018 were cars made in China.

Detractors might ask: But what about the surge in Chinese EV exports in recent years?

It is true that the total number of Chinese EVs exported to the EU rose from 209,000 in 2021 to 438,000 in 2023. But the stock of registered EVs in Europe rose by 5.8 million from 2021 to 2023.

Because the EV market in Europe is growing so quickly, in no year did Chinese-made EVs account for more than 13% of all new registrations. In fact, last year’s export “surge” saw the “Chinese” share rise just 34 basis points!

Plus, the FT report referred to earlier mentioned that 54% of the EVs registered in the EU this year were made in China and sold by Western or Japanese firms.

So market share calculations based on the total number of Chinese EV exports overstate the actual share of Chinese-owned EV carmakers.

Overlooking the diversity in EV producers in China is a mistake too. Table 2 reveals significant variation in firm profitability, capacity utilisation rates, and car exports to the EU. Indeed, last year together these firms shipped total of 781,000 EV and non-EV passenger cars to the EU.

Even if provisional duties removed all Chinese EVs from the EU market, Chinese carmakers will be pressuring European rivals in other market segments. Plus, with plans to build plants inside the EU, Europeans would soon see the return of Chinese EV brands.