Chinese EVs dominance faces global scrutiny. What’s the future

The country was also responsible for 35 per cent of global EV exports in 2022. In fact, Chinese automaker BYD sold more electric vehicles than Tesla in Q4 2023.

US scrutiny and concerns

However, the rosy picture of Chinese EVs seems to be at risk. The US government is intensifying its scrutiny of Chinese-made motor vehicles, particularly electric models, aligning with Europe in challenging China over suspected labor law violations while prioritizing the protection of domestic industries. This heightened vigilance was underscored when US customs officials, as reported by the Financial Times, detained numerous European cars due to the inclusion of a Chinese subcomponent, which authorities deemed a breach of US laws against forced labour.

This action by US customs aligns with existing federal and state subsidies for electric vehicles made in North America and likely indicates forthcoming measures in a similar vein, according to Yan Liang, chair of economics at Willamette University. Liang added that US tariffs on automotive imports from China remain steep, particularly for EVs, which face a 25 per cent levy. The trade and technology disputes between Washington and Beijing over the past six years have seen tariffs escalated on a broad spectrum of goods.

Highlighting potential risks associated with Chinese EVs, US Commerce Secretary Gina Raimondo stated last month that these vehicles could pose risks by collecting information about drivers. According to Liang, the US measures are designed to promote domestically produced EVs, making it more challenging for US companies to acquire parts from China or utilise Chinese imported components.

EU’s anti-subsidy investigation

The European Union, China’s largest export market for EVs, announced last year that it would carry out an anti-subsidy investigation. Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis, predicts that the trend of increased scrutiny will continue in both Europe and the US. She believes this is just the beginning and anticipates that it will impact not only Chinese autos but also other green tech industries.

Chen Zhiwu, chair professor of finance at the University of Hong Kong, suggests that American and European officials are likely coordinating their resistance to Chinese automotive imports. He argues that it is not a random occurrence for both the EU and US to be closely scrutinizing cars coming from China.

Regarding the actions taken by US customs reported by the Financial Times, Yan Liang, chair of economics at Willamette University, stated that it is unclear how heavily the issue of forced labor influenced these actions. Liang noted that forced labor allegations typically pertain to goods with lower value-added, such as clothing, which undergo fewer production stages from raw material to finished product. The US government often associates references to forced labour with the Xinjiang Uygur autonomous region, an area where Beijing has repeatedly denied allegations of forced labour.

Volkswagen, which has operated a factory in the regional capital of Urumqi since 2013, announced last year that it would conduct an “independent audit” of the plant, according to the US-based advocacy group Human Rights Watch. Volkswagen is also reportedly investigating a sub-supplier and considering terminating its relationship with the supplier if investigations confirm serious violations. Agence France-Presse reported that forced labor may have been used to construct a test track in 2019, citing a German business newspaper.

Political and economic implications

American and European officials may be targeting China to protect automotive sectors at home, analysts said. The top Chinese official for European affairs criticized the European Union’s investigation into electric vehicle (EV) subsidies, labeling it as “sheer protectionism.”

Zha Daojiong, a Peking University international studies professor, characterized the US ‘forced labor’ legislation as primarily political. He argued that instead of positively contributing to improving global labor conditions, the legislation forces all businesses in the supply chain to address accusations that may not be directly related to the specific product being traded.

Future of Chinese EVs

China will continue to play a significant role in the market’s continued expansion thanks to sizable growth in its domestic production. China is poised to maintain its dominance in the global electric vehicle (EV) sector, with an estimated 11.5 million new EVs projected to be sold in the country this year, representing a 44 per cent share of all new car sales. In December alone, China accounted for a staggering 69 per cent of all new EV sales worldwide.

The growth trajectory is impressive, with a 37 per cent annual increase in sales recorded last year, resulting in approximately 9 million new EVs sold and a market share of 34 per cent. China’s commitment to EVs is evident in its ambitious targets, aiming for a 45 per cent market share by 2027, an increase from the initially planned 40 per cent by 2030. This demonstrates China’s significant role in driving the global shift towards electric mobility.

First Published Date: 25 Mar 2024, 10:00 AM IST