Pay Attention to the Impact of the U.S. Electric Vehicle Subsidy Regulations on China

The year 2024 marks the official implementation of the "Electric Vehicle Subsidy Regulations" by the United States, henceforth referred to as the "Regulations". It stipulates that electric vehicles eligible for U.S. tax credits "must not contain any battery components manufactured or assembled by 'Foreign Entities of Concern' (FEOC)"; from 2025, the conditions will extend to "must not contain any critical minerals extracted, processed, or recycled by FEOC". China has been listed by the United States as an FEOC source country. The "Regulations" are not only to protect the U.S. electric vehicle market from foreign product impact but also to exert influence to accelerate the "de-Chinaization" of the global new energy automobile industry chain. Overall, the "Regulations" do not have a direct impact on China's new energy vehicles in the short term, but the medium and long-term impact cannot be ignored, and strategic countermeasures should be formulated and implemented as soon as possible.

The "Regulations" as the Fourth Arrow of U.S. Suppression

New energy vehicles are the intersection of new technologies such as new generation information technology, new materials, and artificial intelligence, and are one of the competitive commanding heights highly valued by developed economies. In recent years, China's new energy vehicles have developed rapidly, becoming the world's largest consumer market and manufacturing and exporting country. In 2023, China's new energy vehicle sales reached 9.5 million units, accounting for 32% of China's total vehicle sales and 66% of the global new energy vehicle total sales; the annual export volume exceeded 1.2 million units, contributing 71% to the vehicle export volume, and new energy vehicles and lithium-ion batteries have increasingly become the main force driving China's foreign trade growth.

U.S. Measures to Suppress Chinese New Energy Vehicles

Before the introduction of the "Regulations", the United States had already launched "three arrows" against China's new energy vehicles:

• Increase tariffs on Chinese automotive products. During the Trump era, the U.S. imposed a 25% tariff on Chinese electric vehicles; in 2011 and 2018, it initiated "double anti" investigations on steel wheel products from China. In March 2024, a U.S. federal senator proposed a bill to raise tariffs on Chinese car imports and impose high tariffs on cars assembled by Chinese companies in Mexico; on May 14, 2024, the U.S. officially announced that it would raise the import tariff on Chinese electric vehicles from 25% to 100%.
• Obstruct the development of Chinese automotive supply chains in the U.S. Restrict technological cooperation between Chinese and American companies in the field of electric vehicles, and impose sanctions and import controls on companies such as CATL. By the end of 2023, the U.S. had included more than 1,200 Chinese companies in the control "blacklist", involving many automotive electronics and parts companies; in January 2024, the U.S. Congress banned the U.S. Department of Defense from purchasing power batteries produced by six Chinese companies including CATL and BYD. The U.S. attempts to influence the procurement and cooperation decisions of global companies through these measures, reducing the dependence on the Chinese automotive supply chain.
• Accelerate the "de-Chinaization" of the capital market. In 2022, the U.S. Securities and Exchange Commission (SEC) included three electric vehicle companies (Li Auto, NIO, and XPeng) in the "pre-delisting list" of Chinese concept stocks. In addition, the U.S. also proposed "friendshore outsourcing" and persuaded allies to transfer production capacity to so-called "friendly countries", attracting ASEAN countries to achieve docking with American companies.

Indirect Damage to China's New Energy Vehicle Industry

Overall, the indirect impact of the "Regulations" on China's new energy vehicles is greater than the direct impact, and the medium and long-term impact is greater than the short-term impact. Especially the U.S., with its political and economic influence, attempts to hinder China's in-depth cooperation with global enterprises, markets, and supply chains, and weaken the global competitiveness of China's car assembly and auto parts.

Effective Countermeasures Needed

The United States' introduction of the "Regulations" and other policies to curb the development of China's new energy vehicles is neither the beginning nor the end. Timely and effective response is crucial for the long-term and overall development strategy of China's emerging industries. Taking new energy vehicles as a breakthrough to break through the U.S. restrictions and suppression, China also has a certain foundation and conditions.

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