EU Starts Investigation Into Tesla's China Exports For Possible Subsidy Violations

The European Union has started an investigation into whether China has subsidised electric vehicle (EV) makers and Tesla Inc. is among the automakers that could be affected. The probe, initiated on September 13, has the potential to reshape the competitive landscape in the world's second-largest EV market, after China. 

The EU is the most attractive export destination for Chinese EV companies, but the bloc is also keen to protect its own manufacturers.

Tesla began exporting Model 3 sedans built at its Shanghai factory in late 2020. Through the first seven months of this year, Tesla sold an estimated 93,700 made-in-China vehicles across Western Europe, accounting for roughly 47 per cent of its total deliveries.

Tesla has enjoyed perks in China that other international companies struggled to obtain, including the state's blessing to wholly own its domestic operations. Tax breaks, cheap loans and other forms of assistance helped turn China into Tesla's most important market outside the US.

The EU is now looking to determine whether these and other forms of support that China provides domestic EV makers are undercutting EU producers. In recent probes of other sectors such as e-bikes and fibre-optic cables, the EU discovered subsidy margins ranging from 4 per cent to 17 per cent.

Any amount of edge is critical in the low-margin auto industry, which Europe is increasingly pressuring to electrify as part of its broader Green Deal initiatives. The EU adopted standards earlier this year requiring manufacturers to slash 55 per cent of CO2 emissions from new passenger cars by 2030 and zero out emissions from new passenger cars by 2030 and to zero out emissions five years later.

There's concern within Europe that its companies have fallen behind Tesla and Chinese companies with respect to EV and battery technology, threatening the viability of the EU's car industry which provides almost 14 million direct and indirect jobs.

The EV dispute was high on the agenda of the EU trade chief's recent trip to China. Valdis Dombrovskis, an executive vice president at the European Commission, sought to stabilise the relationship and limit fallout from the investigation, which Beijing has called "a naked act of protectionism."