The European Union will launch a probe into subsidies on Chinese electric vehicles as it accuses Beijing of “distorting” the European market.

The European Commission said global markets were being “flooded with cheaper Chinese electric cars”

European Commission president Ursula von der Leyen announced the probe in her annual address to EU lawmakers on Wednesday, warning that markets were being “flooded with cheaper Chinese electric cars”.

Von der Leyen told the European parliament in Strasbourg that the price of Chinese electric cars was being “kept artificially low by huge state subsidies”, undercutting competitors.

“Europe is open for competition. Not for a race to the bottom,” she added.

The investigation could lead to punitive tariffs on Chinese electric cars, pushing up the end- price to consumers, and follows calls from France to hit back at surging imports.

The European Automobile Manufacturers’ Association (ACEA) said it was a positive move.

“The European Commission is recognising the increasingly asymmetric situation our industry is faced with, and is giving urgent consideration to distorted competition in our sector,” commented Sigrid de Vries, director general of the association.

But the UK’s Society of Motor Manufacturers and Traders (SMMT) was more cautious.

Mike Hawes, chief executive, commented: “We will monitor the situation and carefully assess the potential for any impact on the UK. However, the industry is committed to free and fair global trade and has been successful on that basis.

“The immediate priority is our own competitiveness – both manufacturing and market – and the development and implementation of a strategy to enhance the UK offering.”

Beijing has since blasted the EU announcement, saying it was a protectionist move and warning it would damage economic and trade relations.

Switch to smaller car production could help European OEMs compete with Chinese

New research out today indicates that carmakers could “hold off the challenge of Chinese companies surging into Europe”  by switching their focus to smaller, more affordable EVs.

According to the study by eco-campaign group Transport & Environment (T&E), carmakers can sell small electric cars made in Europe for €25,000 / £21,000 while making a 4% profit margin.

Prioritising such vehicles rather than SUV could also be “a game changer for mass adoption of electric cars”. A quarter (25%) of new car buyers already intend to buy an electric car in the next year, according to a YouGov poll for T&E in France, Germany, Italy, Spain, Poland and the UK. But when given the option of a small €25,000 electric car, the share of new car buyers willing to buy a battery electric model increases to 35%. This would equate to an additional one million EVs being sold in Europe annually, replacing combustion equivalents.

Julia Poliscanova, senior director for vehicles and e-mobility supply chains at T&E, said: “Survey after survey has shown prices are one of the biggest barriers to drivers going electric. The €25k small BEV will be a game changer for public adoption of electric cars. Bringing those models to market quickly and in volumes is crucial for European manufacturers to compete with Chinese rivals which are already offering cheap, small electric cars here.”