Tesla is furious it’s not in EU’s Chinese subsidy probe. Here’s why

Tesla is furious it’s not in EU’s Chinese subsidy probe. Here’s why

POLITICO — 2023-11-10

Automotive Industry

For once, Elon Musk isn't front and center, and he isn't happy about it.

His electric car company Tesla has been excluded from the European Commission's list of companies that are being examined in a probe of Chinese subsidies for electric vehicle companies as the bloc tries to shield itself from a growing flood of Chinese imports.

The Commission reaffirmed its provisional sample choice in a final decision on Friday.

Tesla is by far the biggest exporter of electric vehicles from China into Europe, so wants to be involved in the EU's subsidy investigation. If it is excluded, its lawyers argue, the US electric vehicle giant could find itself unfairly targeted by countervailing duties imposed on the basis of Chinese subsidies awarded to other companies.

Instead, the Commission picked three Chinese carmakers: BYD, SAIC and Geely.

"The Commission’s decision to exclude from the sample the by far largest exporting producer is entirely unprecedented and untenable," reads a legal response from Steptoe & Johnson dated October 30 to the Commission's sampling probe, seen by POLITICO. It adds that it is "entirely unreasonable" not to include Tesla, given that it exports more than the three selected firms to Europe.

In the first six months of 2023, Tesla accounted for 39% of all EV exports from China against 26.3% for SAIC and 16% for BYD, according to a report from the Center for Strategic and International Studies. Geely’s share is 1.5%.

Duty calls

There's a sensible commercial reason why Tesla wants to be on the EU's list.

The range of companies included in the sample helps determine the level of subsequent countervailing duties.

If the Commission finds proof of subsidies in those three producers, it will calculate an average extra duty that will apply to all imports of electric vehicles coming from China, even those like Tesla that weren't part of the sample.

Non-sampled cooperating companies get “a weighted average of these individual duties,” said Commission spokesperson Olof Gill, adding: “The Commission does not automatically sample all companies that want to be sampled."

According to a note by the Commission to “interested parties” seen by POLITICO, the Commission selected the sample companies on the basis of their export volume, but also other information including their eligibility for subsidies.

But, according to Tesla’s Brussels-based lawyers, this is a divergence from usual practice. In the note to the Commission, they argue that the EU executive has in several previous investigations “explicitly refused” to rely on criteria other than the export volume to select a sample of exporting producers.

And the consequences are likely to rock Tesla's business.

The Chinese companies have likely received financial support from Beijing to give them an advantage on the global and domestic market, said Matthias Schmidt, an independent automotive analyst, adding that Tesla may have not benefitted to the same extent from such subsidies.

It’s understandable Tesla would be “bitterly disappointed,” he said. “Think of it as economic collective punishment.”

Schmidt said there is another good reason for the EU to leave Tesla off the list. Making its Chinese-produced cars more expensive could force it to expand production in Europe. The company produces its Model Y at a massive plant just outside Berlin, while all Model 3 cars are made in China.

"This may be a way of showing them to divest in China and reinvest more production in Europe, creating some much needed jobs in Europe," he said. "This would be a call to Tesla to shift European Model 3 production from China to Europe."