How not to revive Europe’s auto industry

{"text":[[{"start":5.12,"text":"By the standards of the EU’s policy towards China, trade commissioner Maroš Šefčovič’s “understanding” with Beijing for an informal auto export quota for conventional hybrids and plug-ins was a victory. Announced last week, it in effect closed a loophole the EU left when it imposed anti-subsidy duties on electric vehicles in 2024."}],[{"start":25.508,"text":"But those tariffs haven’t really worked, and not just because Chinese exports shifted to hybrids rather than battery vehicles. Unless European companies radically improve their functioning, neither the new import quotas nor the EU’s planned additions to its trade weaponry equip the bloc to meet Chinese competition."}],[{"start":null,"text":"

"}],[{"start":42.96,"text":"The standard view of big EU corporates and governments — but I repeat myself — is that China has cheated by using state subsidies to undercut competitors. But the last couple of years have shown that the legacy car companies are struggling to compete even as they attempt to use the anti-subsidy tariffs to tilt the playing field in their favour."}],[{"start":62.16,"text":"Overall imports of EVs from China have continued to rise. Within that total, the cars made by Chinese-origin companies have gained market share, particularly at the expense of Tesla."}],[{"start":null,"text":""}],[{"start":73.52,"text":"The bellwether European producer Volkswagen is seeing higher EV sales in the EU but is getting hammered in the Chinese market, and its CEO says the EU car industry needs more help. BMW, whose Neue Klasse design platform is more advanced than most European manufacturers, nonetheless still seems to be behind the Chinese curve. The non-profit group Transport & Environment calculates that despite the tariffs, Chinese EVs are competitive on price in all categories against their European counterparts in the EU market."}],[{"start":null,"text":""}],[{"start":103.62,"text":"It’s about strategy and management as much as subsidies. The likes of BYD certainly benefited from past state support, but their operations were refined in a ferociously competitive domestic Chinese EV market. Meanwhile, European car manufacturers were eking out incremental engineering advances in the obsolescent internal combustion engine (ICE)."}],[{"start":129.92,"text":"As Hosuk Lee-Makiyama of the ECIPE think-tank wrote recently for the briefing service Borderlex: “Whilst Stuttgart optimised the diesel engine to the last decimal, the Chinese province of Anhui was dreaming of a self-driving electric car.”"}],[{"start":136.164,"text":"China’s overall research and development as a share of GDP has risen sharply over the past quarter century and now is much higher than the EU’s. German R&D by the same measure is well above the EU average but has grown much more slowly. Lee-Makiyama says that European corporations distributed dividends while US, Chinese and Japanese companies invested in new technology."}],[{"start":null,"text":""}],[{"start":159.051,"text":"European governments and car companies also paid little attention to the imminent challenge from China in the early 2020s, focusing instead on making their autos eligible for US tax credits. Moreover, as the recent meeting between German Chancellor Friedrich Merz and French President Emmanuel Macron shows, Germany’s long obsession with lobbying the EU to weaken the 2035 phaseout date for new ICE cars continues."}],[{"start":185.04,"text":"The plug-in hybrids in Šefčovič’s deal are attractive to European manufacturers because they use some of the existing ICE supply chain and currently have high profit margins. But they may well prove a transitional technology, with battery EVs ultimately predominating. It’s unfortunately all too likely that these quotas simply turn into a long-term programme of managed trade where consumers pay more for autos and Europe again locks in the dominance of underperforming incumbent companies."}],[{"start":215.356,"text":"Nor are agreed quotas a model that China is even remotely likely to apply across the swath of other industries in which it has established technological and competitive leads, including robotics, chemicals, renewables and drones. China knows the symbolic importance of cars to the EU: the hybrids deal is a deep but narrow concession."}],[{"start":235.487,"text":"It’s not as if European companies are incapable of innovation. The world-beating Dutch company ASML, manufacturer of lithographic machinery to make semiconductors, received public-private support but certainly not large-scale trade protection."}],[{"start":250.56,"text":"Some trade intervention may be useful if it’s part of a broader innovation strategy. But those calling for more protection need to show how they will reverse a decline caused not only by subsidised foreign competition, but poor management."}],[{"start":263.36,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1791942788_1140.mp3"}