The Electric Vehicle Race: How EU-China Tensions and Strategic Autonomy Shape the Future of EVs

The relationship between the EU, China and the US, continues to be a complex strategic entanglement (Brown, 2017; Wang, 2010; Wu, 2021). Following the EU’s announcement of an anti-subsidy probe into Chinese electric vehicles, Josep Borrell, the European Union High Representative / Vice President (EUHV) embarked on a three-day visit to China in October 2023. This visit came at a sensitive juncture, mere weeks after the EU announced an investigation into electronic vehicles from China.

Although the key objectives of Borrell’s visit were to strengthen bilateral relations while expressing concerns about trade and global security, the outcomes of such visits can be varied and may take time to materialise fully. The world watches closely as the EUHV’s visit to China unfolds, understanding that the ramifications of such high-level engagements shape not only bilateral relations but also the broader international political and economic landscape. The shifting dynamics of cooperation and competition between the three major entities, i.e., the EU, China, and the US, as captured within this triangular framework (see Figure 1), provide essential context for the future global order. Key issues THE SIGNIFICANCE OF THE THREE-DAY EUHV VISIT TO CHINA On October 12th, 2023, the top foreign affairs diplomat of the European Union (EU), EUHV Josep Borrell, and the EU’s Energy Commissioner, Simson conducted their three-day visit to China. These highly anticipated EU-China dialogues took place at a precarious time, just weeks after the EU President Von der Leyen announced an investigation (“probe”) into China’s electric vehicles, and during the escalating Israel-Hamas conflict. This probe, seen as a significant part of the EU’s broader de-risking strategy toward China, has sparked widespread opposition from Chinese policymakers and industry executives, who argue that such actions could further sour trade ties between the EU and China, especially in strategic sectors, such as renewable energy. Borrell’s trip is expected to lay the ground for the upcoming top-tier EU-China summit later this year. BORRELL: “WE DO NOT WANT TO DECOUPLE FROM CHINA, NOR IS IT FEASIBLE” In his keynote speech at the Peking University Overseas Exchange Centre, Borrell emphasised the significance of EU-China collaboration on many pressing global challenges, ranging from trade balances and climate change to regional war tensions. He clarified the EU’s stance, stating that its aim is de-risking, not decoupling. The EU views decoupling as unfeasible and sees China as an essential partner in addressing these global issues1.

A CALL ON CHINA TO CHANGE PERSPECTIVES ON THE EU’S DE-RISKING STRATEGY AND START REBUILDING MUTUAL TRUST According to Borrell, de-risking is not a trade-off to rebuilding the trust between EU and China, from a European perspective. Borrell highlighted the need to de-risk in the EU, as its heavy reliance on non-EU countries in areas such as domestic security, advanced technology, or the supply chain of critical goods, has made the EU vulnerable and posed real challenges to the sustainability of the economy. At the same time, Borrell highlighted the urgency of restoring confidence and credibility between the EU and China. He alluded to the recent decline in EU investments in China, which have plummeted to their lowest levels in five years. Additionally, he stressed the importance of bolstering cooperation on the personal, scientific, and economic fronts, which are currently at a nadir. Borrell suggested that China holds an important key to this trust-rebuilding process with the EU: China should step up its humanitarian support to Ukraine and leverage its influence to mediate between Russia and Ukraine. Taking such steps would offer substantial relief and foster trust within the European region, which has been hit hard by this regional conflict (Borrel, 2023). CHINA’S REACTION TO BORRELL’S TRIP Responding to Borrell’s overtures, the Chinese news agency Global Times published an editorial that was also republished in People’s Daily, a major state-affiliated newspaper. The article emphasised that should Borrell’s trip be solely aimed at justifying the EU’s anti-subsidy probe, then China’s stance of opposition would remain unwavering. It underscored that while the EU’s de-risking strategies might be undertaken in the name of defending their vulnerabilities, such moves could be interpreted by China as a sign of distrust. While acknowledging that Borrell’s visit exemplified the EU’s recognition of the importance of EU-China trade relations, the editorial highlighted China’s lingering scepticism. This scepticism revolves around the EU’s capacity for strategic autonomy, particularly when it translates into tangible actions, given the longstanding influence of the US and the current US-China geopolitical tensions. As one Chinese scholar explained, “the relationship between China, the United States and the European Union is not an equilateral triangle”, since from a Chinese perspective, the EU and the US are connected by much closer ties of shared interests and understandings and remain separated from China by “profound and enduring differences and conflicts” (Wang, 2010). Even though the EU aspires toward a more autonomous position in forming relationships with China on multiple fronts — e.g., climate change, economics, and health — China remains cautious in committing to promises from the EU.

In response to China’s scepticism, Borrell emphasised that China should evaluate EU policies independently, without viewing them solely through the lens of US influence, urging China to take Europe’s stance more seriously (Bermingham, 2023) THE EU’S ASPIRATION FOR STRATEGIC AUTONOMY Amidst the escalating US-China tensions, the EU has increasingly pursued the notion of strategic autonomy. This is an initiative to enhance its independent capacity to operate across various domains, especially in the realm of foreign policy, innovative technologies, and critical supply chains. Despite being coined in various terms, such as ‘open strategic autonomy’, ‘strategic sovereignty’, ‘capacity to act’, and ‘resilience’, the EU concept of “Strategic Autonomy” (EU-SA) has continuously evolved over time. Between 2013 and 2016, the focus was primarily on security and defence. From 2017 to 2019, the emphasis shifted to safeguarding European interests amid challenges like Brexit, the Trump administration, and China’s assertiveness (European Parliament, 2023) The Covid-19 pandemic in 2020 further highlighted the need to reduce economic reliance on external supply chains. Since 2021, this EU-SA concept broadened to cover nearly all EU policy areas. The EU’s vision is clear: to emerge as a robust, decisive player on the global stage, protecting its interests and promoting its values. These stances can be viewed as a response to the changing global order, one that is characterised by intensified geopolitical rivalry and mounting challenges to the principles of multilateralism (McAllister, 2022) US-CHINA DECOUPLING: REAL OR SYMBOLIC? Much has been said about the ongoing strategic rivalry between the US and China, the first and second largest economies in the world. The Trump administration in 2017 championed and popularised the idea of “decoupling China”, especially in strategic sectors (Black, 2021), despite its negative repercussions, such as rising domestic inflations, and disrupted business and academic exchanges. Recent data has shown that by 2022, China’s share of US imports had declined by 6% compared to 2017, which was compensated by other countries or regions, such as Mexico or Vietnam. However, it’s interesting to see that those countries that export more to the US, also increased their trade relations with China (Freund et al., 2023). Given that the global supply chain is highly fragmented yet intertwined, whether decoupling trade from China could reduce US dependence on China in absolute terms remains uncertain.

EU-CHINA DE-RISKING—A PARADIGM SHIFT WITHIN EU-CHINA RELATIONS The EU bloc of 27 countries, collectively is the world’s third-largest economy in terms of GDP, trailing only the US and China. Under the concept of strategic autonomy, “de-risking” emerged as a cornerstone of the EU’s strategy in March 2023, introduced by EU President von de Leyen. Much like the US-China de-coupling approach, this initiative aims to mitigate risks by diversifying suppliers, particularly in strategic sectors such as solar panels, batteries, and electric vehicles. The intent of reducing the over-reliance on a single market or sole supplier is believed to be caused by three significant events: the Sino-US technological rivalry that began in 2017, the COVID-19 pandemic of 2020, and the ongoing Russian-Ukraine conflict since 2022 (Okano-Heijmans, 2023) The repercussions of these events have led to a prevalent sentiment in Europe in terms of a perceived imbalance in certain trade relations. The EU’s significant dependence on countries outside of the EU for critical resources is seen as a vulnerability, given experiences like the shortage of healthcare supplies during the COVID pandemic and the surge in energy prices following the Russia- Ukraine conflict (owning to a 40% dependence on Russian gas). This sentiment exerts considerable pressure on both regional and national European governments to recalibrate this balance and ensure the sustainability of the European economy. Therefore, this paradigm change, as in “de-risking” strategy, signals the EU’s shift from an open economic approach to one that is more cautious and strategic. The EU posits that de-risking is essential for its economic resilience (European Parliament, 2023). However, China views de-risking as potential protectionism, possibly influenced by the US. During discussions, Borrell addressed two of the three causes mentioned above but notably sidestepped the implications of US-China tensions. Instead, in an interview in the South China Morning Post (Bermingham, 2023). Borrell emphasised that China should evaluate European policies on their own merit, suggesting that the EU’s steps were inevitable. DUAL CIRCULATION STRATEGY—CHINA’S TAKE ON GLOBALIZATION POST COVID-19 PANDEMIC During Borrell’s three-day visit, he called on China to take on a similar mission of de-risking, by quoting what Chinese president Xi Jinping said in 2020, namely that China “must build a domestic supply system that is independently controllable, secure, and reliable so that self-circulation can be accomplished at critical moments”, which summarizes the so-called de-risking with Chinese characteristics. In fact, triggered by the Hong Kong turmoil in 2019 and the vulnerability of an export-led economy due to the COVID-19 pandemic, the Chinese government in 2020 has attempted to orient itself away from an export-led economy and shifted to a domestic-consumption-driven economy26. This was coined “dual circulation”, which refers to China’s self-reliant economic development, featuring domestic and international dual circulations that complement each other. This new development model marks China’s desire for a more balanced approach to its economic growth pattern.

Therefore, the decoupling or de-risking force among the three entities is taking place in various degrees and on different fronts (Figure 1). The ramifications for global enterprises are still lagging and remain to be seen (Black, 2021). Figure 1 De-risking in the context of the EU-US-China triangular framework THE EU’S APPROACH: BILATERAL LENS OR A MULTIPOLAR STRATEGY? While the combined GDPs of the EU, China, and the US account for nearly 60% of the global GDP (Statista, 2023a; 2023b) global influence isn’t solely dictated by economic prowess but is also influenced by multiple factors such as demographic or military capability (Beckley, 2018). Under such a broader lens, the world power distribution is rather fragmented (Figure 2) — many have argued that since WWII, the world has transitioned from a unipolar to a multipolar structure (Ashford & Cooper, 2023; Diesen, 2019;  Muzaffar et al., 2017). This implies that the intricate dynamics of EU-China relations cannot be understood by merely analysing their bilateral ties, or even the triangular ties with the US involved. In fact, many other places in the world have witnessed a similar anti-globalisation trend from policymakers to public sentiment (Walter, 2021), which may have ripple effects across regions and its consequences, such as in global trade and security, should not be underestimated. In essence, the EU-China relationship is influenced by a diverse set of stakeholders, extending beyond the confines of the US. Whether it is still effective to take on a bilateral or triangle lens to manage the impacts to and from other countries remains to be seen.

Figure 2 Composite Index of National Capability (2007) THE CURRENT DEVELOPMENT OF CHINESE EVS The EU’s anti-subsidy investigation into Chinese EVs has heightened interest in China’s advancement in the green energy sector. China has emerged as a significant hub for EV sales and EV component manufacturing. China is expected to account for 52% of the EVs expected to be sold globally in 2023, outpacing both the US (12%) and the EU (29%) in sales revenues. The affordability (about 20% cheaper than non-Chinese brands) (as shown in Table 1) and increasing quality of vehicles made in China make them appealing to consumers worldwide, posing a challenge to the US and other countries in terms of cost and competitiveness. Chinese EV makers have attributed their competitive advantage to advancements in battery technology, which is a crucial component of EVs. Indeed, China has a significant cost advantage in battery production—it accounts for a significant portion of global lithium battery production, (six among the top 10 battery companies are Chinese, holding about 63% global market share)—highlighting its dominance in this critical technological area (BloombergNEF, 2022). Besides, China has sustained investment in new energy projects, underpinning its strong financial support for battery innovations and related technologies (China Battery Market Insights, 2022) The current Chinese EV market is swiftly maturing with a proliferation of EV producers, hinting at a potential industry consolidation on the way. Also, China’s EV market share is expected to decline by about 8% by 2028, due to the higher growth elsewhere like in Europe (Table 1). With an eye on growth in the global market, coupled with intensified domestic competition, Chinese EV makers have been speeding up their international expansion, including in European markets.

THE EU’S GREEN-ENERGY JOURNEY While China has intensified its investment and adoption of clean-energy vehicles, a similar movement is taking place in the EU. Since July 2021, the EU has solidified its commitment to combat climate change with its “Fit for 55” legislation under the European Green Deal initiative14. The aim is to reduce CO2 emissions by at least 55% by 2030, compared to 1990 levels. As of 2022, the EU has achieved an approximate reduction of 45%. With the ambition to close the remaining 10% gap in under a decade, the challenge is steep. Furthermore, the European Parliament has advocated for an even more aggressive target of 60%. Central to the EU’s strategy is the accelerated transition to green energy, with an emphasis on encouraging automakers to ramp up the production of eco-friendly vehicles. To catalyse the transition to EVs, many European governments have also rolled out a range of incentives, including subsidies, tax benefits, and grants (European Alternative Fuels Observatory, 2023) A significant portion of investments has been channelled into expanding the charging infrastructure — which includes charging networks, fast-charging stations, and home charging solutions — to promote broader EV adoption. Some countries, like the UK and the Netherlands, have taken a bolder stance by declaring impending bans on internal combustion engine (ICE) vehicles, thereby pushing for EV dominance. A notable surge in demand for eco-friendly products complements these government-led initiatives. European consumers, increasingly attuned to environmental concerns, and coupled with the dense urbanization and evolving lifestyles, lean toward compact and eco-friendly vehicles. Market projections suggest that EV revenues could soar to US$164 billion in 2023, with an expected compound annual growth rate (CAGR) of 11.99% to 2028 (Table 1). So far both China and the EU are on upward trajectories in the EV market. China stands out in terms of revenue and vehicle deliveries, while Europe is experiencing robust market growth, fuelled by technological advancements, government incentives, and a decisive shift in consumer preferences towards more sustainable and eco-friendly transportation options.

Table 1 an overview of the global EV market8,9 THE EU-CHINA COMPETITION ON EV MARKET While both the EU and China aim to reduce CO2 emissions, competition between EU-made and China-made EVs is intensifying. The exponential growth of Chinese EVs has prompted global car makers to adjust their pricing strategies. For instance, Renault announced an ambitious plan in July 2023 to cut production costs for its electric models by 40%. Similarly, Tesla has implemented several price cuts this year in response to eroding margins (Guillaume & Piovaccari, 2023). Upon increased price competition, the EU has decided to launch an anti-subsidy investigation against the Chinese EVs, as mentioned earlier. The timing of this investigation is particularly noteworthy, given that China’s share of EVs sold in Europe has rapidly risen to 8% and is expected to reach 15% in 2025 (Goh & Woo, 2023). Interestingly, the European Commission (EC) launched this anti-subsidy investigation ex officio, meaning it commenced the probe without a formal complaint from the industry. Moreover, since this product category hasn’t been the subject of previous trade defence measures, the EC lacks historical evidence from past investigations for reference, except for the fact that Chinese EVs are priced approximately 20% lower than the average EU-made EVs (as seen in Figure 3). There is a prevalent belief within the EU that Chinese EVs benefit from substantial subsidies, potentially undermining the competitiveness of the European automotive industry. It’s important to note that the scope of the anti-subsidy investigation extends beyond Chinese EV brands. It also encompasses all EVs manufactured in China, including non-Chinese brands such as Tesla, Renault, and BMW. This broad scope has led to differing opinions among the 27 EU member states. Given the cross-national interdependencies within the global supply chain, some countries contend that protectionist measures might inadvertently damage their own domestic industries (Goh & Woo, 2023).

Figure 3 EV markets in comparison8,9 IMPLICATIONS OF THE EU’S ANTI-SUBSIDY INVESTIGATION The EU’s initiation of an anti-subsidy probe against Chinese EVs has far-reaching implications. Should the investigation result in a decision against China, it could lead to increased tariffs on Chinese EV imports into the EU. Given this precedent, other nations such as the UK, which already faces challenges in battery and EV production, might be inclined to follow suit. In contrast, the US has less of an incentive to increase tariffs given its already steep 27.5% rate on Chinese EV imports, significantly higher than the EU’s current 10% (White & Case LLP International Law Firm, 2023). In the wake of the announcement of the probe, stock values of Chinese EVs took a hit. Surprisingly, European carmakers also witnessed a decline in their share prices (Goh & Woo, 2023). The Chinese Chamber of Commerce has been vocal in its opposition to both the claim and the probe. They have strongly urged the EU to approach the situation with an unbiased lens. Both analysts and industry executives in China and some European businesses have raised concerns about potential retaliatory measures from China should the EU impose tariffs (Farabi, 2023). They fear China could initiate trade remedy investigations in other sectors, or even escalate matters to the multilateral level using the World Trade Organisation’s dispute settlement mechanism (García-Herrero, 2023). These concerns underscore the need for a more balanced and thoughtful approach to addressing such competition issues (Goh & Woo, 2023). Looking forward and Conclusions: REBALANCING THE EU-CHINA STRATEGIC DYNAMICS

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