EU proposes subsidies to boost electric vehicle sales amid Chinese competition

Brussels has pledged to support Europe’s struggling car industry by implementing EU-wide subsidies to boost demand for electric vehicles (EVs).

European Commission Vice-President Teresa Ribera, speaking to the Financial Times (FT) at the World Economic Forum (WEF) in Davos, revealed that authorities are still shaping options for a stimulus program.

“In a pan-European perspective, it makes sense to see how we can facilitate measures instead of national subsidies,” Ribera said, cautioning against “a race where we could end up with one national model versus another.”

German Chancellor Olaf Scholz announced on Tuesday that the European Commission is considering an EU subsidy program he proposed. The German government abruptly shelved its own program in 2023, leading to a decline in EV sales. According to the European Automobile Manufacturers’ Association, many EU member states offer incentives for EVs, but the terms vary widely, and several member states provide no purchase subsidies at all.

One of Brussels’ challenges will be designing a scheme that complies with World Trade Organization (WTO) rules while preventing subsidies from flowing to Chinese carmakers, whose market share is growing rapidly.

Ribera acknowledged the need for a “complex balance” between rapid electrification and “incompatibility with the capacity of European brands to deliver in quantity and quality what we want to see on our roads.” As the commissioner responsible for the EU’s green industry strategy, she emphasized that a potential incentive program would be one of several measures to support a sector vital to the European economy.

Ribera stated that European carmakers “need a comprehensive view on how to update their capacities and catch up with worldwide demand.” She rejected postponing the 2035 deadline for ending new sales of internal combustion engines, arguing that the auto industry requires “predictability and clarity.”

“It makes no sense to reopen the debate when it would provide some certainty and penalize the first movers who take it seriously without giving any potential advantage to those who still need to act,” Ribera said.

However, she expressed openness to flexibility on annual EV sales targets and the penalties carmakers would face if they failed to meet them. Ribera also mentioned an “open discussion” with carmakers about alternative commitments they could make in terms of investment.

Automakers have raised concerns that buying credits from Chinese EV manufacturers would benefit their Chinese rivals, while paying penalties would hinder their own EV investment plans. Ribera stressed the importance of ensuring that legislation facilitates the primary objective of phasing out petrol and diesel engines.

Additionally, Ribera indicated openness to extending technology transfer requirements for foreign carmakers wishing to establish production facilities within the EU. Last year, Brussels announced that foreign companies receiving EU grants for battery development would need to share some technologies with local partners.

Ribera also highlighted the need to protect European turbine makers facing fierce competition from Chinese companies. She noted that European wind turbine manufacturers’ shares were impacted by former US President Donald Trump’s initial policy announcements, including the suspension of new offshore project leases.

Despite Trump’s decision to abandon the 2015 Paris Agreement on emissions reductions, Ribera insisted that the EU would remain committed to decarbonization. “The world is much bigger than [the US], and there are many other partners and players who understand why it is important to stay united,” she said, citing the wildfires in Los Angeles as evidence of the high costs the US is facing due to climate change.