China takes on US in epic EV battle, blames subsidies as ‘discriminatory’

China has started dispute settlement proceedings at the World Trade Organization against the United States over subsidies on electric vehicles offered by the Joe Biden government under the Inflation Reduction Act (IRA). The subsidies under IRA are applicable on EVs which have their final assembly in North America, making them more affordable than comparable models manufactured or assembled elsewhere.

China is the world's largest manufacturer of - and market for - EVs. But while global brands compete with local players within China, Chinese companies are now looking to enter the US market as well. But while relatively affordable even when brought in via import route, these models would have a more fierce battle at hand against EVs that are eligible for subsidies in the US.

China accuses the US of using IRA to exclude its goods from the country. “Under the disguise of responding to climate change, reducing carbon emission and protecting the environment, (these subsidies) are in fact contingent upon the purchase and use of goods from the United States, or imported from certain particular regions," Reuters quoted Chinese officials as saying. They add that they are looking for a fair and level playing field.

What is Inflation Reduction Act?

American EV manufacturing companies are worried about the possibility of Chinese models flooding the US market with car market and it is largely believed that these models would be positioned at affordable price points due to the cost dynamics at play. This is already seen in many European countries where Chinese EV models have grown in popularity.

As such, the Inflation Reduction Act or IRA seeks to make EVs assembled in the North America more lucrative for US buyers, in terms of pricing. An eligible EV can be purchased with federal tax rebates of up to $7,500 (approximately ₹6.25 lakh). While Biden states that the objective behind this is to take EVs to more price-conscious buyers, an eligble EV needs to have its final assembly process in North America while a majority of its battery components be sourced either from the US or from any of its allies.

Chinese EV brands on world expansion

US-based Tesla has been the world leader in the EV game for several years. But in the last three months of 2023, China's BYD overtook the Elon Musk-led company. While BYD does not yet have operations in the US - officials say it is a ‘complicated market’ - the potential for an entry remains a source of concern for American car brands like Tesla, GM, Ford and others.

Then there are several other Chinese brands like Xpeng, Nio and Great Wall Motors that are making moves to invade and potentially conquer foreign markets as well.