The Surge of Chinese-Made EVs in Europe: Strategic Implications and the Call for Tariffs

The European electric vehicle (EV) market is poised to witness a marked increase in the presence of China-manufactured units, with projections indicating that by 2024, one in every four EVs sold in Europe will originate from China. This forecast, as per analysis by Transport & Environment (T&E), underscores a burgeoning trend: the Chinese EV industry’s penetration into the European sector is set to expand from the current 19.5% to a substantial 25% in the ensuing year.

This pronounced shift carries significant ramifications for the European Union (EU), which is currently deliberating the imposition of import tariffs to counterbalance the state-backed subsidies that bolster China’s EV industry. T&E asserts that to compete with Chinese brands effectively, European carmakers must not only escalate the production of mass-market electric vehicles but also invest robustly in the regional battery supply chain. According to T&E, tariffs would serve as an additional mechanism to encourage the localisation of EV manufacturing within the European Union.

The import landscape, hitherto dominated by Tesla, Dacia, and BMW vehicles produced in China, is expected to evolve with an increase in market share for Chinese brands themselves. T&E’s conservative estimate suggests that by 2024, Chinese brands could claim 11% of the European EV market, escalating to 20% by 2027. This projection takes into account the trajectory of the past two years and includes BYD’s ambitious target of capturing 5% of the market by 2025.

Julia Poliscanova, T&E’s senior director for vehicles and e-mobility supply chains, articulates a dual perspective on tariffs. While acknowledging their strategic role in compelling carmakers to relocate production to Europe—a move that promises job creation and skill retention—she cautions that such measures will not provide indefinite protection for legacy automakers. The potential establishment of Chinese manufacturing plants in Europe necessitates a state of readiness within the EU car industry.

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Furthermore, T&E’s analysis suggests that increasing EU tariffs on all vehicle imports from China to 25% could render medium-sized sedans and SUVs from China more costly than their European counterparts, thus bolstering the case for EU-based manufacturing. Yet, compact SUVs and larger vehicles from China may retain a cost advantage even under such tariff regimes.

A delicate balance must be struck, T&E advises. The EU’s objective should not be to insulate its carmakers from legitimate competition, which could inadvertently constrain the availability of affordable EV options for European consumers. Instead, T&E recommends a calibrated approach wherein higher tariffs are complemented by regulatory measures aimed at amplifying EV production, such as setting electrification targets for company car fleets by 2030, in addition to the established goal of achieving a 100% clean car fleet by 2035.

The investment landscape for lithium-ion batteries also presents a conundrum. With Chinese cells undercutting European prices by at least 20% and Chinese manufacturers leading in technology and supply chains, the EU’s position appears precarious, especially when juxtaposed with the United States, which is drawing investments through substantial subsidies. T&E posits that to foster a resilient and varied battery supply chain, the EU must promulgate industrial measures, including subsidies for clean, circular manufacturing, and establish “Made in EU” benchmarks. In the absence of such measures, T&E suggests that tariffs for battery cells be contemplated, noting that the EU’s tariffs are currently inferior to those of the US and China.

Poliscanova’s stark warning encapsulates the urgency of the situation: “Batteries are the new solar. China is ahead, and its state-backed companies have huge overcapacity. If we are serious about a diverse and resilient battery supply chain in Europe, we need to put our money where our mouth is right now. We’re not going to get a second chance.” As the narrative unfolds, the strategic choices made by the EU will have profound implications for its automotive industry’s competitive landscape and its overarching green mobility objectives.

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