The European Union's recent investigation into Chinese electric vehicle (EV) subsidies has escalated into a heated dispute, presenting a new catalyst for the EV industry and potentially straining EU-China relations. However, amidst the tension, Tesla, the renowned US EV manufacturer, may emerge relatively unscathed.

In response to the EU probe, China's commerce ministry issued a statement on Thursday denouncing it as "naked protectionism" that could adversely affect bilateral economic and trade relations between China and the EU. This sharp rebuke came after European Commission President Ursula von der Leyen accused China of artificially deflating EV prices through substantial state subsidies, thereby distorting fair competition.

The news triggered a decline in the stock prices of prominent Chinese EV companies such as NIO (NIO), XPeng (XPEV), and BYD (1211.China) on Wednesday. However, by Thursday, NIO and XPeng's US-listed shares rebounded. European automotive giants like Volkswagen (VOW3.Germany), Mercedes-Benz (MBG), and Stellantis (STLA) experienced an initial surge in their stock prices on Wednesday, only to see them decline on Thursday.

Evidently, this subsidy dispute is poised to impact the performance of European and Chinese market players in the short term. This outcome is hardly surprising given that legacy automakers constitute a critical component of Europe's economy. Although Volkswagen currently leads the EV market in the region, Matthias Schmidt, the publisher of the European Electric Car Report, reveals that BYD is poised to become Europe's fastest-growing EV brand in 2023. The rapid expansion of China's EV manufacturers within Europe directly threatens European business interests.

In contrast to its peers, Tesla has the advantage of being an American company operating on the sidelines. Consequently, it may transcend the repercussions of the EU-China feud. Remarkably, both Europe and China are vital markets for Tesla. Schmidt reports that the company commands nearly a 19% share of the European EV market, with the Model Y standing out as the most popular EV in the region. Moreover, China serves as a crucial manufacturing base for Tesla, while its affluent population presents an exceptional growth market.

In light of the ongoing developments, Tesla's stock rose by 1.4% on Wednesday and continued its upward trajectory with a further 0.6% increase in the Thursday premarket. It seems that investors are taking note of the potential opportunities arising from this contentious situation.

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