LIs the surge of Chinese electric cars likely to be stemmed by customs barriers? After nine months of investigation, Brussels considers that China is violating World Trade Organization rules and has therefore decided to apply “countervailing duties” on imports of vehicles made in China of up to 48 %, compared to 10% currently.
This decision responds more to political than economic objectives. It will undoubtedly help to attenuate criticism of the alleged European “naiveté” with regard to free trade. However, the competitiveness gap with China will not be resolved through an escalation of customs barriers, but by a forced march of catching up with its industrial and technological delay in this sector. Taxes will only buy a little time when Europe has already fallen far behind.
Attributing the fragility of the European automobile industry in the face of its Chinese rivals to unfair public subsidy practices is reassuring but a little short-sighted. The evil is much deeper. The situation is unprecedented: since the invention of the automobile, more than a century ago, Europe is no longer at the forefront of innovation. Since the beginning of the 2000s, China has been betting on electricity. On the Old Continent, manufacturers waited for the “dieselgate” scandal to finally embark on this transition.
Painful awakening
Beyond this delay in ignition, the Europeans are today paying for their strategic errors. While the Chinese attacked the electric market by focusing on affordable models for the greatest number of people, the manufacturers of the Old Continent targeted the high end. In this segment, margins are high, but sales volumes are low. Result: Chinese brands have accumulated experience earlier to reduce their costs, while benefiting from much greater economies of scale, a determining factor in this industry. If the Europeans had massified from the start, the two markets would today be equivalent in size and they would fight with the same weapons. It’s difficult to blame the Chinese for their relevant choices.
Today, waking up is painful. The first European models priced at less than 20,000 euros are just starting to be marketed. Their growth will take time. From this point of view, taxes on imported Chinese vehicles are welcome. But it is legitimate to ask whether the role of the European Commission is to correct the strategic errors of manufacturers. Furthermore, Chinese brands have considerable margins to counter European taxes: vehicles currently exported to Europe are sold at half the price in China. Adaptation will be done by cutting into their margins.
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