The European Commission will start an anti-subsidy investigation into electric vehicles entering the EU from China, a move cautiously welcomed by the European auto association ACEA.

“Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies. This is distorting our market,” EC President Ursula von der Leyen said in her annual State of the European Union address on Wednesday. “We do not accept this from the inside, we do not accept this from the outside.”

The official says Europe is open for competition, “not for a race to the bottom.” The probe seeks to defend the EU against “unfair practices.” Yet, von der Leyen notes it is “vital” to keep an open dialogue with China because there needs to be cooperation on other topics.

The plan is to de-risk, not decouple from China, the official claims.

The announcement is seen as a “positive signal” that the EC is recognising the increasingly asymmetric situation the European auto industry is facing, ACEA says in a note to Kallanish. “We will now study the details [of the investigation] and stand ready to participate in the enquiry as an interested party,” the trade body adds.

The share of Chinese all-electric vehicles in Western Europe rose from 0.5% in 2019 to 3.9% in 2021. So far this year, Chinese manufacturers have won 8.2% of the European electric car market, selling 86,000 BEVs, according to Schmidt Automotive Research.

Last month, ACEA’s director general Sigrid de Vries warned Chinese brands and Chinese-made vehicles are making rapid inroads into the European EV market, propped up by public money and government intent. “China’s comparative advantage and cost-competitive imports could chip away at European automakers’ domestic market share, ultimately impacting local activity,” she said.

The probe is unlikely to be straightforward as many European carmakers are producing EVs in China and exporting to the EU. The Asian giant is the biggest vehicle market in the world and a production and innovation hub for components and vehicles. The country accounts for 75% of the global battery production capacity and has a near monopoly on critical raw material supplies.

German carmakers Volkswagen and BMW Group, which rely on Chinese production and exports, are yet to comment on the matter. The same applies to European-based, Chinese-owned brands Volvo Cars, Polestar and Lotus, among others.

A pragmatic approach to dealing with such an intricate situation is a “solid and comprehensive industrial strategy that will enable us to rival other world regions on an equal footing,” concludes ACEA.