MILAN (Reuters) - German car stocks, highly exposed to China, dragged down Europe's auto index on Thursday after the government in Beijing warned the European Commission that its probe into China's electric vehicle subsidies could hurt trade relations.
By 0909 GMT, the STOXX Europe 600 Auto index led fallers, down 1.4%, while the broader market was steady.
Porsche (ETR:P911_p), which counts China as its largest market, saw a drop of 2.99%. BMW, which exports the iX3 from China and plans to export the Mini from 2024, fell 2.18%, with Mercedes-Benz down 1.9% and Volkswagen (ETR:VOWG_p) down 1.6%.
Stocks for French carmakers Renault (EPA:RENA) and Stellantis, which are less exposed to the Chinese market than their German counterparts, saw a smaller dip of 1.13% and 0.9% respectively.
German carmakers, who rely on China for around a third of passenger car sales, have been muted in their reaction to the EU's announcement of a probe into whether Chinese state subsidies for EV makers are creating unfair competition in Europe.
While German Economy Minister Robert Habeck welcomed the move, autos association VDA warned that the EU should focus on creating the conditions for European players to succeed - from lowering electricity prices to reducing bureaucratic hurdles.
"For German OEMs, the risk of retaliation in China should not be ignored," UBS wrote in a research note on Thursday.
France's automakers have a much smaller presence in China, lowering the risk of a hit to industry if politicians take a stronger stance.
French President Emmanuel Macron has long called for the EU to strengthen its autonomy from China and demand a more level playing field.
Still, Renault is the second-largest EV exporter from China last year after Tesla (NASDAQ:TSLA), shipping the Dacia Spring EV to Europe - potentially placing it in the firing line for any punitive tariffs.