Shares of Chinese EV makers are falling after European Union (EU) regulators launched a probe targeting state subsidies for Chinese EV makers such as Nio (NIO), BYD, and XPeng (XPEV).

The probe was launched in a bid to protect domestic automakers and highlight growing competition between Europe and China. In recent years, traditional European automakers like Volkswagen, Mercedes Benz, BMW, and Stellantis (STLA) have faced increased competition from Chinese EV makers, which have benefitted from massive state subsiꦛdies for electric vehicle♍s.

Registrations of Chinese cars in the EU surged 130% year-over-year in the seven months through July, while those of European cars rose just 36%.

"Global markets are now flooded with cheaper Chinese electric cars. And their price is kept artificially low by huge state subsidies," European Commission President Ursula von der Leyen said Wednesday in her 2023 State of the Union address.

Who Stands to Benefit?

The probe could lead to trade restrictions such as import tariffs, and those could negatively impact Chinese automakers' sales in the EU. It could level the playing field for European automakers with EV models of their own that have been repeatedly undercut by Chinese competitors.

U.S. EV makers like Tesla (TSLA) could also benefit, as they would not be subject to the same probe as their Chinese counterparts. It's important to note, that while the EU is training its lens on Chinese subsidies, EV-makers in the U.S. are also 澳洲幸运5官方开奖结果体彩网:eligible for tax credits if they meet certain criteria.

Tesla has recorded stellar sales growth of its own in Europe, with its share of the European EV market rising 7 percentage points to 19% as of July. The company's Model Y and Model 3 were the two best-selling EVs in June, with Volkswagen's ID.4 and the Fiat 500e in a distant third and fourth, respectively. Taken together, registrations of all U.S.-made EVs more than doubled year-over-year in June.

Shares of Tesla were up more than 1% in early trading Wednesday, while those of Chinese EV makers Nio and Xpeng fell 3%. Shares of BMW and Stellantis, which owns European brands like Opel, Peugeot, Citroen, Alfa Romeo, and Fiat, were up roughly half a percent.

Europe's Approach to China

Wednesday's decision is a sign of rising trade tension between Europe and China. Until recently, European lawmakers had adopted a more conciliatory approach to China than their U.S. counterparts, with the latter two countries embroiled in a trade war since 2018.

Even so, in her State of the Union Address, von der Leyen emphasized keeping open lines of communication and dialogue with China, and said "de-risk, not de-couple" will be her strategy moving forward.