SHANGHAI — The European Fee started investigating on Wednesday whether or not to set punitive tariffs to guard its producers from imports of cheaper Chinese language electrical automobiles that it says profit from state subsidies.

Listed below are the large questions concerning the transfer, which led to a slide in shares of Chinese language EV makers on Thursday:

Why export to Europe and why how a lot have exports grown?

A key driver for his or her push overseas has been slowing demand in China that has exacerbated overcapacity.

Invoice Russo, CEO of Shanghai-based advisory agency Automobility, has estimated that China has extra auto capability of about 10 million automobiles a yr, the equal of two-thirds of all North American output in 2022.

Europe has turn into a key export marketplace for Chinese language manufacturers, helped by the bloc’s strict guidelines on emissions and Beijing’s comparatively benign commerce ties, in distinction with rising rigidity with america.

Chinese language new power car shipments to the EU jumped 112 p.c within the first seven months of 2023 on the yr and 361 p.c from 2021, customs information exhibits.

The European Fee stated China’s share of EVs bought in Europe has risen to eight p.c and will attain 15 p.c by 2025.

Why are China-made EVs cheaper?

China produces EVs extra cheaply than anyplace else.

That’s primarily because of Beijing’s decade-old business promotion coverage of incentives and subsidies that enabled China to turn into the world’s largest EV market and management the worldwide EV provide chain, together with uncooked supplies.

EVs made in China are sometimes a fifth cheaper than EU-made fashions, the European Fee says.

The coverage has additionally spawned business heavyweights such because the world’s largest EV battery maker CATL and BYD, which changed Volkswagen Group this yr as China’s best-selling automobile model.

China’s value and provide chain benefits have drawn international corporations to fabricate there.

The most effective identified of those is Tesla, whose big plant in Shanghai produced out greater than 700,000 automobiles in 2022, or half the U.S. automaker’s complete output.

Renault and BMW additionally construct automobiles for export in China.

Who’s the EU’s investigation concentrating on?

The EU’s anti-subsidy investigation covers battery-powered automobiles from China, so it additionally contains the non-Chinese language producers there.

The only largest exporter is Tesla, accounting for 40 p.c of China’s EV exports between January and April, U.S. thinktank the Heart for Strategic and Worldwide Research says.

Fashionable Chinese language manufacturers exported to Europe embody Geely’s Volvo and state-owned automaker SAIC’s MG.

Different corporations corresponding to market chief BYD, Nio and Xpeng have additionally began increasing to European international locations, together with the Netherlands and Denmark.

What subsidies have been rolled out?

Chinese language state subsidies for electrical and hybrid automobiles totaled $57 billion between 2016 and 2022, consultants AlixPartners have estimated.

China’s best-known EV subsidy program aimed to spur purchases. Paid to the automaker on the level of buy, the subsidy started in 2009 and was scaled again steadily to finish final yr.

It paid out almost $15 billion to encourage EV purchases by means of 2021, China Retailers Financial institution Worldwide has estimated.

In June, China unveiled a package deal of tax breaks value 520 billion yuan ($72 billion) over 4 years aimed toward boosting gross sales of EVs and different inexperienced automobiles.

Many native authorities proceed to supply separate help or tax rebates to draw manufacturing funding, in addition to client subsidies. These have grown in recent times because the economic system slows.

The EU stated its investigation targets a broad vary of attainable unfair subsidies, from costs for uncooked supplies and batteries, to preferential lending or low cost provision of land.