It’s absurd to block the cheapest electric cars
China has hugely reduced the cost of EVs — why is that a bad thing?
The capitalists, goes the saying attributed to Lenin, “will sell us the rope with which we will hang them”. But Communist China will get us to buy the rope. That, at least, seems to be the belief of the West’s panicking leaders as it belatedly dawns on them that Beijing will be the winner of the so-called green industrial revolution.
This is already evident in solar power: by 2022 more than 90 per cent of the solar panels installed in Europe were imported from China: that is even after, in 2013, the EU imposed anti-dumping and anti-subsidy measures on Chinese solar cells and modules.
Now the European car industry — and that in the US, too — believes it is facing a similar threat; or, to be specific, the market for electric vehicles (EVs), which our governments have declared must, by 2035, be the only new cars sold. To save the planet. But the EVs are significantly more expensive than their internal combustion engine equivalents — and that is one of the reasons for consumer resistance to the path to virtue.
Enter the dragon. The cheapest Chinese EV sells for the equivalent of $11,000, whereas the most basic Tesla in the US goes for about $40,000. And now vast, specially designed ships from China are beginning to dock in Europe’s ports — the first destined for Germany arrived last Sunday in Bremerhaven — loaded with low-cost EVs. Above all, ones made by China’s, and now the world’s, leading EV manufacturer, BYD. That stands for Build Your Dreams. But it’s a nightmare, according to the head of Tesla, Elon Musk, who, having ridiculed BYD’s first model as no threat whatsoever (“Have you seen their car?”), now says that without trade barriers the Chinese manufacturers “will pretty much demolish most other companies in the world”.
As it happens, Tesla’s own biggest plant is in Shanghai; in the first 11 months of last year it produced over 850,000 vehicles. Killer fact No 1: it churns out those EVs twice as quickly as does Tesla’s Texas plant. Killer fact No 2 (for those in the British car industry): China’s industrial electricity prices are about a quarter of those in the UK. That’s partly because China is still 60 per cent powered by coal, which remains the cheapest form of generating electricity but is now abandoned in this country — again, to save the planet.
But something is stirring in Whitehall. Last week the website Politico reported that “Britain is considering whether to investigate Chinese state subsidies for EV makers … the UK trade secretary, Kemi Badenoch, is preparing to instruct Britain’s trade watchdog, the Trade Remedies Authority, to open an investigation”. This would follow a similar action in Brussels: last October the EU launched just such an investigation into alleged “unfair” trading practices, after the president of the European Commission, Ursula von der Leyen, warned that global markets were about to be “flooded” with cheap Chinese cars.
Perhaps von der Leyen was also exercised by the fact that Uefa, Europe’s football federation, had replaced VW with BYD as its automotive partner for the Euro 2024 championship. But you don’t have to be Chinese to regard all this with a certain amount of cynicism. Roughly every second VW worldwide is sold in the People’s Republic of China, notably from the German company’s plant in Xinjiang.
It was Europe’s decision to move from the traditional form of locomotion (relying on highly complex drive trains, in which it had engineering leadership) to one of batteries on wheels; and, as the German writer Ralph Schoellhammer observed: “China has more control over these [battery] supply chains than Opec has over the supply of crude oil.”
Nor does it appear that China is “dumping” — that is, exporting products at a price lower than they are sold in the home country, or at a loss. As Estonia’s International Centre for Defence and Security noted in its recent paper “Chinese EVs in Europe: a threat to European automakers?”: “Let’s compare the prices of BYD EVs in China and Germany, taking the newly launched BYD Dolphin as an example. In China the BYD Dolphin retails for €24,400. That is €11,590 cheaper than in Germany, where it retails for €35,990. Given that BYD is a profitable company, its production cost in China is certainly lower than the inflated retail price in Germany, meaning … this cannot be considered dumping, by definition.”
These price differentials also suggest that if the EU (or indeed the UK) were eventually able to persuade the World Trade Organisation that its rules had been broken, the Chinese EVs would still be the cheapest option even with substantial tariffs imposed on them — and, to be clear, this would amount to a fine on the European or British consumer for purchasing the very sort of car we are being told to buy by the same governments.
While it is true that, in the years of building up its EV capacity, China heavily subsidised its manufacturers (though this backing has been steadily withdrawn), western governments have also given inducements to those setting up EV and battery capacity in their territories. No more so than President Biden, with his Inflation Reduction Act, putting tens of billions of dollars the way of US firms in “green technology”, above all those in the domestic auto industry. By the way, since these billions are being borrowed by the US Treasury, it is, if anything, the opposite of an inflation reduction act.
Biden had also continued with the 27.5 per cent tariff on Chinese-made cars imposed by President Trump. But on Thursday old Joe came up with a new reason to legislate against cheap Chinese EVs: they might contain technology that could spy on their American owners. Biden declared that China “could flood our market with its vehicles, posing risks to our national security. I’m not going to let that happen on my watch.” The president added that there was even a physical risk: Chinese cars driven by Americans might be “remotely accessed or disabled”.
I’m sure that is possible. But if such a thing were to happen to even one driver — and were detected — it would destroy the entire Chinese industrial strategy overnight. Would Beijing really risk that?
I was never in favour of the plan pursued by Brussels and Westminster to phase out even hybrid vehicles (I write as the owner of a still excellent 2008 Lexus hybrid). But it is preposterous to demand consumers switch to EVs and then to attempt to block the supply of the ones that are most affordable — and whose appearance in showrooms would put downward pressure on the prices of all such “virtuous” vehicles.
Haven’t our governments noticed that anything that reduces the cost of living might actually make them less unpopular?
