Tesla Drops on Report EU is Investigating Over China Subsidies

Tesla (TSLA:US) shares fell more than 1% in early Tuesday trade after the Financial Times reported that the EV maker is under regulatory scrutiny by the European Union. 

In the recently announced anti-subsidy probe into Chinese EV makers, Tesla was identified as one of the companies that likely benefited from subsidies.

“Strictly speaking, it’s not limited only to Chinese brand electrical vehicles, it can be also other producers’ vehicles if they are receiving production-side subsidies,” EU executive vice-president Valdis Dombrovskis said.

The purpose of this investigation is to assess whether China has subsidized Tesla and other domestic manufacturers such as BYD Co., SAIC Motor Corp., and Nio Inc. Accordingly, regulators were looking to determine the extent of these subsidies and take any necessary countervailing measures to ensure a level playing field for the EU's EV industry.

The EU's probe, made public by European Commission President Ursula von der Leyen, has the potential to impact the competitive landscape of the second-largest EV market in the world, after China. 

Both the EU and China have reasons to proceed cautiously, as the EU risks exposing its manufacturers to potential retaliation, while Chinese companies have a strong interest in the EU as an export destination due to excess production capacity.

Tesla began exporting Model 3 sedans from its Shanghai factory in late 2020, making it the primary vehicle export hub by July 2021. In the first seven months of 2023, Tesla sold an estimated 93,700 vehicles made in China in Western Europe.

Tesla stock is up almost 130% year-to-date. Recently, Congressmen Michael Guest and Ro Khanna were witnessed buying TSLA stock.