Hungary may win car plants on EU-China war, but may also 'win' immediate sanctions
European Commission President Ursula von der Leyen announced around two weeks ago that a subsidy investigation into Chinese exports of electric vehicles to the EU is being launched: the European Commission wants to investigate whether Beijing is using state subsidies to drive down the price of Chinese manufacturers' products to the point of bleeding out EU operators.
Moreover, lobbyists would extend the investigation to the entire automotive chain, including those already having manufacturing capacities inside the bloc. This could even put battery factories in Hungary at risk.
Although China is increasingly dominating the electric vehicle market, it was spooked by the EU probe and the import duties that are likely to be imposed at the end of it, and is planning steps to minimise the damage caused by Brussels.
The main element of this damage control is that Chinese brands can set up car factories in the EU.
An executive at state-owned SAIC Motor said this month that the company has begun the process of choosing a site for a European assembly plant. At this month's Munich auto show, an executive at BYD - the world's top EV manufacturer - said the company will select a location for a finished-vehicle factory in the region by year-end, according to Chinese media, Asia Nikkei reported.
Great Wall Motor told a German outlet that it is looking at Germany, Hungary and the Czech Republic as candidates to house a new factory, and
Chery Automobile is reportedly in talks with U.K. officials about a plant there.
BYD's Chairman and CEO Wang Chuanfu has recently been in Hungary and talked with Hungarian Foreign Minister Péter Szijjártó.
In a speech at Tsinghua University in Beijing overnight, Valdis Dombrovskis, the EU's trade chief, appealed to China to play fair — or European companies would pull out of the once-unmissable market.
The lack of reciprocity and level playing field from China, coupled with wider geopolitical shifts, has forced the EU to become more assertive,
Politico cited him as saying.
“The Chinese government has created a more politicized business environment by expanding its toolkit to protect national security and development interests. This has resulted in less transparency, unequal access to procurement, discriminatory standards and security requirements," he added.
Chinese Foreign Ministry spokesperson Wang Wenbin criticized the investigation on Monday, saying it will "disrupt the stability of global auto industrial and supply chains."
Chinese carmakers have benefited significantly from the global shift towards electric cars, a trend that is in line with the EU's goal to phase out CO2-emitting cars by 2035.In 2022, China produced a staggering 7 million new energy vehicles, including EVs, outpacing all other countries. According to industry reports, around 15% of these vehicles were exported, with around 550,000 of these going to Europe.
About 450,000 Chinese EVs were exported to Europe in the first seven months of 2023. China's share of the regional market reached 8% for that period, up from less than 1% for 2019 as a whole, by one estimate.
As Europe's economy shows signs of slowing, the European Commission is focusing on industrial development and protecting jobs -- especially in the auto industry, a major employer in Germany and France, as well as in Hungary.
Immediate counter-measure expected by Brussels
Declining sales by European carmakers in both Europe and China, coupled with concerns about economic security due to over-reliance on a single trading partner, have put the EU in the crosshairs of Chinese electric vehicles.
Chinese car manufacturers hope to allay these concerns by emphasising their commitment to job creation, but the EU is also taking action against new investment at any time.
Under the Foreign Subsidies Regulation (FSR), which came into force in July, Brussels can also scrutinise subsidies to Chinese companies entering the EU's internal market and impose heavy fines on the operators who enter.
This could extend to manufacturers of essential EV components such as batteries, along with companies such as Contemporary Amperex Technology (CATL), which has been operating a factory in Germany since December 2022 and building another in Hungary.
Moreover, it would not be difficult for the European Commission to prove state aid from Beijing:
- For example, in 2020, CATL reported in its stock exchange filing that it had received around $1,646 million in state aid, a significant increase from $935 million the previous year.
- And Semcorp, which is also expanding in Debrecen, made more than 100 million yuan in profits a year between 2019 and 2021 from state orders, which the new European regulation could also label as state aid.
The question is whether Chinese promises of job creation in subsidy investigations will be enough to get the EU to soften its stance.
In particular, France could call for tougher measures to protect its own car industry, including the use of FSR on the internal market or import duties on Chinese products.
There is also a risk that Beijing could respond with tighter restrictions on European cars, which could put Germany, whose economy is relatively dependent on China, in a difficult position and possibly cause a rift within the EU.
Cover photo: Workers on the production line of Great Wall Motors Ltd.'s Haval H6 hybrid SUV at the company's plant in Rayong, Thailand, Monday, Jan. 23, 2023. Source: Luke Duggleby/Bloomberg via Getty Images.
