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Bloomberg reports that China is pressuring its automakers to pause expansion in the European Union due to the escalating trade conflict over electric vehicles, according to unnamed sources familiar with the matter. Beijing is telling manufacturers to put a hold on active searches for production sites in the region and signing of new agreements while maintaining a low profile as negotiations over EU tariffs on Chinese electric cars continue, the sources claim.
Unlike the 100% tariffs imposed recently by the US and Canada, which apply to all Chinese made cars, the EU tariffs vary from manufacturer to manufacture and are on top of the existing 10 percent tariff that has been in place for some time. The proposed tariffs by company were — BYD: 17.4%, Geely: 19.9%, SAIC: 37.6%, and 37.6% for any other automakers that did not comply with the EU’s investigation. Several companies, especially SAIC, refused to cooperate with the European Commission investigation and were singled out as a result. Since then, some of the numbers have been reduced by a few tenths of a percent, but the biggest winner was Tesla, which managed to get its assessment down from 20.8% to 9%.
The Pullback In Europe Has Already Begun
Dongfeng Motor Group, which is owned by the Chinese government, has already halted plans to potentially manufacture cars in Italy in response to the warnings, the people said. While Dongfeng told Italian officials that Rome’s support for the EU tariffs was the reason for its pivot, Beijing is also concerned about potential overcapacity due to Europe’s bumpy EV shift and poor demand for Chinese cars in the market, one of the people said. Either way, the move is a setback for Prime Minister Giorgia Meloni, who has tried to attract more automobile manufacturing to the country as local manufacturer Stellantis has reduced production recently.
Italy’s Industry Minister Adolfo Urso traveled to China in July, where he held meetings with executives including a contingent from Dongfeng Motor to win that company’s investment. His trip was supposed to help formalize a deal between Dongfeng Motor and Italy during Meloni’s visit to China later that month, but Beijing asked the automaker not to proceed, the people said.
It should be noted that recommendations from the Commission had to be adopted by the members of the European Union before they could go into effect. The EU has in fact approved the new tariffs, but the vote was hardly unanimous. In the vote on the new tariffs, only two countries with domestic auto industries — France and Italy — voted in favor. Germany and Hungary voted against and 12 other nations abstained. Germany is strongly opposed to the new tariffs because its major automakers — Mercedes, BMW, and Volkswagen — all have significant business interests in China. In fact, profits from sales in China have been keeping Volkswagen afloat for the past several years as it loses diesel sales and tries to transition to manufacturing electric cars. But now those profits are diminishing.
Most of what those companies offered to Chinese customers were powered by internal combustion engines. China is rapidly transitioning to battery-powered cars and plug-in hybrids, which it calls “new energy vehicles.” The corresponding models from the German Big Three are not competitive with domestic offerings, which has led to a sales slump for the German companies. The decrease in profits from China has had a significant impact on Volkswagen, which has ignited a storm of controversy by suggesting it might close one or more factories in Germany, something that has never happened before in the company’s history
China’s directive is not mandatory, according to the people who spoke to Bloomberg. Although, given the authoritarian nature of the Chinese Communist Party, any mutterings from on high are tantamount to an order — one which could have significant consequences for those who don’t take the hint.
45% Tariffs On Some Cars Made In China
Recently, the European Commission proposed increased tariffs on made-in-China electric cars to as high as 45%, arguing that Beijing provides unfair subsidies to its automakers. China denies that claim and has threatened its own duties on European dairy, brandy, pork, and automobile sectors. The European Commission said when it issued its decision, “Today, nine months after the initiation of an ex officio anti-subsidy investigation, the European Commission has imposed provisional countervailing duties on imports of battery electric vehicles (BEVs) from China. Based on the investigation, the Commission has concluded that the BEV value chain in China benefits from unfair subsidization, which is causing a threat of economic injury to EU BEV producers. The investigation has also examined the likely consequences and impact of these measures on importers, users and consumers of BEVs in the EU. ”
It’s not just Dongfeng Motor that’s treading more carefully. Chongqing Changan Automobile Co., a state-owned carmaker based in western China, canceled an event to launch its brand in Europe that was supposed to take place this week in Milan because the tariff negotiations are still ongoing, one of the sources said. Chery moved its goal to start building EVs at a plant it has taken over in Spain back by one year to October 2025 as the company weighs the amount of work to be carried out at the Barcelona site following the EU’s tariff decision. The EU and China have pledged to work toward an alternative agreement that would avoid the need for levies.
The cone of silence has been lowered over the entire discussion of tariffs. A spokesperson for the Italian industry minister declined to comment. Representatives from Dongfeng Motor and Changan Automobile didn’t respond to requests for comment. Representatives from China’s Ministry of Commerce, or MOFCOM, didn’t respond to a request for comment.
Demand for battery-powered cars has suffered in Europe after several countries walked back subsidies, a move that has had significant consequence for Chinese brands like Nio and MG, which is owned by SAIC. Both saw sales of their electric cars in the EU fall after those incentives were removed, with MG sales cut nearly in half to the lowest level in 18 months. The loss of those incentives also led to a steep decline in electric car sales throughout Europe, especially in Germany, where the decision to slash incentives came with little prior warning.
BYD is pushing ahead with plans to build a factory in Hungary to help it bypass the EU tariffs. It currently sells the Seal and Atto 3 electric car models in Europe. It’s also planning a $1 billion plant in Turkey, which has a customs union agreement with the EU that would make BYD cars built there exempt from tariffs as well. Sharp-eyed readers will recall that BYD is also considering building a factory in Mexico, which would potentially allow it to export its cars to the United States duty free.
The kicker there is the US government has recently banned any cars that use electronics and software sourced from Chinese companies. That could slow BYD down a bit, but if you have been paying attention to its robust export intentions, it is already planning how to build cars without those Chinese made components. The tariff wars are just beginning and could ramp up dramatically if the upcoming US election shuffles the deck. Everyone agrees Chinese automakers are an existential threat to legacy automakers in the EU, the US, and Canada, but not everyone agrees that is necessarily a bad thing, considering how vigorously most of them have opposed the transition to low- and zero-emissions cars and trucks. Buckle up! There’s a bumpy road ahead.
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