Europe steps up EV protectionism to target China

Protectionism around pure electric vehicles (EVs) is intensifying in Europe. In France, some vehicles produced in Asia, such as MG Motor, the British brand of Shanghai Automotive Group, are expected to be excluded from subsidies because they are considered to have long transport distances and high environmental burdens. Italy is also studying a similar system. Japanese automobile companies that produce EVs in Asia may also be excluded from subsidies.

French government will revise the system of providing subsidies of 5,000 to 7,000 euros for the purchase of EVs by calculating the “environmental score” reflecting carbon emissions by model. In the future, if the environmental score does not meet the requirements, it will be excluded from the subsidy.

The models targeted for the subsidy are scheduled to be announced on 15 December. In order to calculate the score, France has set coefficients by region and country for the carbon emissions generated by the production, assembly, and transport of components. European products with higher proportions of nuclear and renewable power generation and closer proximity between production and sales will have an advantage. Most EVs produced in Asia are expected to have scores below the required values.

In September, the French Minister of Energy Transition commented on the EVs of Shanghai Automotive’s MG and the Dacia Spring, an all-electric SUV produced and exported by Renault in China’s Hubei province, saying that they would be excluded from the subsidy if they were produced under the current production system.

More than 40,000 units of the Dacia Spring were sold in Europe between January and September 2023, about half of which were sold in France. Without the subsidy, the price would have risen by 30% to 20,800 euros. The Model 3, produced in Shanghai by US-based Tesla, could also be excluded from the subsidy.

In Italy, the government subsidises the purchase of EVs to the tune of €3,000, but 80% of the subsidy is spent on imported EVs. The Italian government sees this as a problem and is discussing the introduction of the same system as the French government.

The background to this is the rise of EVs in China. A survey by Germany’s Schmidt Automotive Research shows that more than 400,000 Chinese-made EVs were sold in Europe from January to September 2023, accounting for nearly 30% of new EV sales. Not only cars produced by Chinese manufacturers such as MG and BYD, but also European companies such as Tesla and BMW have produced 150,000 EVs in China considering cost competitiveness.

Asian automakers and governments have expressed opposition to the protectionist moves of France and Italy. The head of public relations of the French local corporation of MG said in an interview with the Nihon Keizai Shimbun, “The conditions for calculating the score are not appropriate. This is not favourable to all companies that produce outside Europe.”

French newspaper La Tribune reported that as a countermeasure, BYD, which is discussing the construction of a new factory within the European region, said it would not build a factory in France if it is not a target (of subsidies). On the other hand, although few EV models are sold in Europe by Japanese manufacturers, it is possible that models exported from Japan will not be subsidised.

Toyota is increasing EV exports from Japan to Europe, where its executives say it cannot compete given unfavourable transport distances, and is discussing production of EVs at its existing engine car plants in Europe.Nissan has also said it plans to invest £3bn in the EV transition of its UK plants in order to export to the EU. The likelihood of the same trend expanding in Japan’s large automotive companies is high.

The South Korean government expressed concern about France’s revision of the system at a meeting of the World Trade Organisation (WTO) Committee on Subsidies and Countervailing Measures in late October. In response, the French government argued that the modification of the system is to reduce the environmental load and does not violate WTO rules. The French Ministry of Economy and Finance stressed that the period from 2024 to 2027 is expected to have the effect of reducing carbon dioxide emissions by 800,000 tonnes per year.

This is despite the fact that France’s Minister Pannier-Runacher has stated that it is good for both jobs and the planet. However, his intention to protect his country’s industry remains implicit.

Similar protectionist trends are set to intensify in other countries. The U.S. government decided on 1 December to exclude models using Chinese-made parts and minerals from the subsidy for EV purchases. The European Union is also investigating the reality of Chinese government subsidies for low-priced Chinese-made EVs circulating in the region.