(Bloomberg) -- One automaker is looming larger than any other in the investigation of electric vehicles flowing into the European Union from China: Tesla Inc.

During the evidence-gathering that precipitated this month’s surprise announcement of an EU anti-subsidy probe into Chinese EVs, the US carmaker was among the companies found to have likely benefited, according to people familiar with the matter.

The aim of the investigation will be to determine whether, and the degree to which, China has subsidized Tesla and domestic manufacturers including BYD Co., SAIC Motor Corp. and Nio Inc., and to take any necessary countervailing measures to level the playing field for the EU’s industry, said the people, who asked not to be identified discussing private deliberations.

Tesla traded down 2% at the open Tuesday in New York, while Nio’s American depositary receipts fell 2.6% in New York. BYD closed down 3.6% in Hong Kong and SAIC dropped 0.7% in Shanghai.

The probe that European Commission President Ursula von der Leyen made public on Sept. 13 has the potential to reshape the competitive dynamics within the world’s second-largest EV market, after China. Both sides have ample reason to proceed carefully: While the EU risks exposing its manufacturers to potential retaliation, the bloc is the most attractive export destination for Chinese companies rife with excess production capacity.

Tesla started exporting Model 3 sedans built at its Shanghai factory in late 2020, less than a year after starting production at its first overseas car plant. By July 2021, the company referred to the facility as its primary vehicle export hub.

Through the first seven months of this year, Tesla sold an estimated 93,700 made-in-China vehicles across Western Europe, accounting for roughly 47% of its total deliveries, according to Schmidt Automotive Research. The next biggest exporter of EVs from China to Europe was SAIC’s MG, with roughly 57,500 registrations.

Tesla, BYD and SAIC declined to comment. Last week, Nio’s co-founder and president Qin Lihong said they “have no intention to go against any market regulation in terms of subsidies.” The European Commission didn’t immediately reply to a request for comment. 

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Tesla has enjoyed perks in China that other international companies struggled to obtain, with the most notable being the state’s blessing to wholly own its domestic operations, rather than have to share custody with a local joint venture partner. Tax breaks, cheap loans and other forms of assistance helped turn China into Tesla’s most important market outside the US.

These and other forms of support that China provides domestic manufacturers, including credits from state-owned banks, capital provisions from state investment funds, and provisions of land and electricity, are now coming under EU scrutiny. Chinese carmakers also benefit from subsidies in related sectors across the value chain, including batteries and software.

Some European companies, such as BMW AG and Renault SA, that operate joint ventures with Chinese manufacturers will also be included in the probe along with all carmakers that produce in China and export to the EU, the people said. 

A spokesperson at BMW didn’t immediately respond to requests for comment and a representative from Renault had no immediate comment.  

After having collected initial evidence that formed the basis for launching the investigation, the EU is now looking to consult with relevant authorities — including in China — and companies to determine the extent to which subsidies may be undercutting EU producers, if at all.

In recent probes of other sectors such as e-bikes and fiber-optic cables, the EU discovered subsidy margins ranging from 4% to 17%, people familiar with the findings said.

Any amount of edge is critical in the low-margin auto industry, which Europe is increasingly pressuring to electrify as part of its broader Green Deal initiatives. The EU adopted standards earlier this year requiring manufacturers to slash 55% of CO2 emissions from new passenger cars by 2030, and to zero out emissions five years later.

There’s concern within Europe that its companies have fallen behind Tesla and Chinese companies with respect to EV and battery technology, threatening the viability of the EU’s car industry that provides almost 14 million direct and indirect jobs.

European businesses have raised concerns about potential retaliation and tit-for-tat disputes emerging from the EV probe. The fear is that Beijing could hit back in broad ways, such as by curtailing access to its massive market, including in unrelated sectors, or limiting exports of critical raw materials that European manufacturers depend on.

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The EV dispute was high on the agenda of the EU trade chief’s recent trip to China. Valdis Dombrovskis, an executive vice president at the European Commission, sought to stabilize the relationship and limit fallout from the investigation, which Beijing has called “a naked act of protectionism.”

--With assistance from Jorge Valero, Danny Lee, Chunying Zhang, Linda Lew and Albertina Torsoli.

(Updates with share moves in the fourth paragraph.)

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