• News
  • china tech
  • electric vehicles

Will China’s EV Stocks Be Impacted by the EU’s Anti-Subsidy Investigation?

As the EV race between China and Europe accelerates, the EU is probing China’s subsidies, in a bid to halt the latter’s push to sell cheaper vehicles on the continent. This could put Europe’s EV manufacturing position at risk.

  • The EU is launching an anti-subsidy investigation into Chinese EVs; Beijing has called the move an “act of protectionism”.
  • Chinese EV makers’ expansion overseas could threaten Europe’s manufacturing position.
  • How to invest in EVs: the S&P Kensho Smart Mobility ETF is up 4.6% in the past six months.

The big news in the electric vehicle (EV) industry last week was the EU opening an anti-subsidy investigation into China-made cars sold across the bloc.

“Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market. And as we do not accept this from the inside, we do not accept this from the outside,” declared EU Commission President Ursula von der Leyen in her State of the Union address to the European Parliament on 13 September.

“Europe is open for competition. Not for a race to the bottom,” von der Leyen added.

The Chinese Commerce Ministry issued a swift response, calling the EU’s move a “naked act of protectionism” that “will seriously disrupt and distort the global automotive industry chain”, reported Bloomberg.

The EU will have up to 13 months to carry out its investigation — the Commission must publish its initial findings within nine months, and then decide whether it wants to impose tariffs above the standard 10% EU rate on China’s EV makers within the following four months.

Mixed Reaction Among European Automakers

In the wake of the EV price war back home and dwindling domestic demand, Chinese EV makers are setting their sights on expansion in Europe, where they could achieve higher margins and faster growth by challenging European automakers with cheaper models.

Earlier this month, XPeng [9868.HK] said it intends to enter the German market and break into France and the UK next year. “Success in Germany will define our success in continental Europe,” XPeng President and Vice Chairman Brian Gu told Automotive News Europe at the IAA Mobility motor show in Munich.

Speaking about the “imminent risk” that China’s EV makers pose, BMW [BMW.DE] CEO Oliver Zipse told the Financial Times earlier this month that the “base car market segment will either vanish or will not be done by European manufacturers.”

Zipse’s comments echo those of Stellantis [STLA] boss Carlos Tavares, who on the sidelines of CES 2023, held last January in Las Vegas, told Europe Automotive News that the stark price difference between Chinese and European automakers means the latter face a “terrible fight”.

However, not all in the automotive industry are supporters of tariffs. Mercedes-Benz [MBG.DE] see them as counterproductive — the company’s CEO Ola Källenius told the German-language newspaper Bild am Sonntag earlier this year that the EU cutting ties with China would be “unthinkable”.

Chinese EV Brands Still Trail Tesla

Despite all the noise around the threat China poses, data from the first half of the year suggests that Chinese automakers aren’t yet matching the growth pace of European counterparts.

According to data from JATO Dynamics, 43,101 Chinese-made cars were registered in Europe in the first half of the year, accounting for only 0.66% of the continent’s market. This was up from a 0.43% market share in the first half of 2022. Meanwhile, Tesla’s [TSLA] market share grew from 1.53% to 2.82%.

The Tesla Model Y was by far the most popular EV brand sold between January and June, shifting 136,564 units, up 204% year-over-year, while its Model 3 was in second place with sales of 42.588, a growth rate of 6%. There were no Chinese brands in the top 10.

“Reputation and brand awareness are the two biggest challenges that Chinese OEMs face, particularly in the West, and they’re very aware of that. Changing this perception will require a lot of work,” remarked Felipe Munoz, Global Analyst at JATO Dynamics, in research published on 30 August.

Nio and BYD Target European Growth

Despite this, Chinese automakers’ share of the European EV market is expected to accelerate in the years ahead, especially as more of the well-known EV brands enter the EU.

Nio [NIO], which is known for its premium vehicles, will launch a cheaper brand, codenamed Firefly, in Europe next year. Meanwhile, BYD [1211.HK] is exploring the feasibility of opening a European production plant in France, Germany or Spain, with the aim of rolling vehicles out from 2025.

“If you want to be successful in a market in the long term, you need localisation,” BYD Europe boss Michael Shu told German newspaper Handelsblatt at the IAA Mobility event. “This also applies to having your own production. We are confident that we will have news on this in Europe by the end of the year,” he added.

Europe’s Manufacturing at Risk

Chinese EV makers’ continued push to expand their European footprint could put the competitiveness of Europe as an EV manufacturing hub at risk, according to Sigrid de Vries, Director General of the European Automobile Manufacturers' Association (ACEA).

In a message published on the ACEA website in August, de Vries explained that Europe’s automotive industry is currently having to absorb the costs of transitioning away from combustion engines and investing in building out the necessary EV charging infrastructure.

“China’s comparative advantage and cost-competitive imports could chip away at European automakers' domestic market share, ultimately impacting local activity,” de Vries warned.

How to Invest in China’s EV Industry

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

Funds in Focus: the Global X China Electric Vehicle and Battery ETF

The Global X China Electric Vehicle and Battery ETF [2845.HK] is a pure-play on China’s EV industry. As of 31 July, 30% of the portfolio is allocated to chemicals and 24.4% to electrical equipment. Machinery has a 14.4% weighting, while automobile components and automobiles have weightings of 10.9% and 10.3% respectively. Metals and mining (7.4%), semiconductors and semiconductor equipment (1.5%) and electronic equipment (1.2%) account for the rest. The fund is down 33.6% in the past year and down 20.3% in the past six months.

The KraneShares Electric Vehicles & Future Mobility Index ETF [KARS] has Li Auto and XPeng in its top 10 holdings. The fund doesn’t offer a portfolio allocation breakdown, but it tracks the Bloomberg Electric Vehicles Index, which offers exposure to companies in autonomous vehicles and shared mobility, both passenger and freight, as well as EVs. The fund is down 16.8% in the past year, and up 0.5% in the past six months.

The S&P Kensho Smart Mobility ETF [HAIL] holds XPeng, Nio and Li Auto. The fund has allocated 23.1% of its portfolio to automobile manufacturers and 14.2% to automobile parts and equipment as of 18 September. Passenger ground transportation has a 7.3% weighting. The fund is down 9.8% in the past year, though it is up 4.6% in the past six months.

Continue reading for FREE

Latest articles