China has reportedly advised its automakers to pause significant investments in European countries that support the newly imposed European Union (EU) tariffs on Chinese-built electric vehicles (EVs). This directive, reportedly issued during an Oct. 10 meeting held by China's Ministry of Commerce, is likely to deepen the existing divide between Europe and China over the burgeoning EV market. The tariffs, which can reach up to 45.3%, were implemented following a year-long EU investigation, which alleged that Chinese EVs were being illegally subsidized, causing economic harm to European automakers.
Sources close to the matter revealed that Chinese EV manufacturers such as BYD, Geely, and SAIC were instructed to be cautious about further investments in countries that backed the EU's decision. These countries include France, Italy, and Poland. Conversely, automakers were encouraged to invest in countries that opposed the tariffs, such as Germany, or abstained from the vote. This marks a strategic move as China continues negotiations with the EU, seeking alternatives to the steep tariffs that many fear could harm trade relations between the two major economies.
The EU's decision has already sparked retaliatory measures from Beijing. China's Ministry of Commerce made clear its discontent, stating that the tariffs were a form of "protectionist practice" and that they violated World Trade Organization (WTO) rules. In response, China has initiated a lawsuit under the WTO dispute settlement mechanism and continues to push for a resolution through diplomatic channels. The ministry emphasized that both sides remain in discussions, hoping to find an acceptable compromise that avoids an escalation of trade tensions.
One possible resolution that has emerged in recent discussions is the imposition of minimum price commitments from Chinese EV producers, or investments in European production facilities, rather than relying on tariffs. However, China has already indicated that, until such a solution is reached, its automakers should exercise caution regarding large-scale investments in Europe, particularly in countries that supported the tariffs. France and Italy, two countries that have courted Chinese automakers in recent years, now find themselves facing potential pullback from Chinese investors, which could jeopardize ongoing projects such as SAIC's plans to establish a European parts center in France.
Meanwhile, the tariffs have put Chinese automakers in a difficult position. BYD, China's largest EV manufacturer, has already established a plant in Hungary, a country that voted against the tariffs. The company is also reportedly considering relocating its European headquarters from the Netherlands to Hungary due to concerns over rising costs. Geely, another major player in the Chinese EV market, has been more cautious in its response, declining to comment on its future investment plans.
Industry experts are watching closely as both sides navigate the fallout from the EU's tariffs. Luca de Meo, CEO of French automaker Renault, defended the EU's move, asserting that the tariffs are in line with WTO rules. He acknowledged that while the additional duties are significant, the larger concern for European automakers is whether they will be able to compete with their Chinese counterparts in the long term. "The question is whether European industry will be able to compete with the Chinese in five years' time," de Meo said during a recent visit to a Renault manufacturing plant.
As both sides continue negotiations, the broader impact on the global EV market remains uncertain. Analysts suggest that the EU's tariffs, combined with the existing U.S. tariffs on Chinese EVs, will force China to diversify its supply chains and expand production outside of the mainland. Ken Peng, head of Asia investment strategy at Citi Wealth, noted that while the current level of tariffs is "moderate," they will likely prompt Chinese manufacturers to reconsider their investment strategies in Europe and other markets.
In the short term, the escalating tensions between China and the EU could hinder the growth of the global EV market, particularly in Europe, where Chinese manufacturers have been making significant inroads. As Chinese automakers await further guidance from Beijing, the outcome of these ongoing negotiations will be critical in determining the future of the EV landscape on the continent.
