Europe makes China’s electric vehicles more expensive, creates new threat for automakers

• Europe cracks down on Chinese electric cars.
• The EU voted on Friday to impose high tariffs on Chinese carmakers.
• European automakers are facing declining sales of electric vehicles and pressure on looming emissions targets.

Europe is targeting Chinese electric cars, but the move to protect the mainland’s automakers could create a new problem for Volkswagen and BMW.

The European Union voted Friday to impose steep tariffs on Chinese electric vehicle makers as it seeks to protect its auto industry from what the bloc says are unfairly subsidized cheap Chinese electric vehicles.

The move will see China’s fast-growing electric vehicle makers hit with a maximum tariff of 35.3 percent on their vehicles, on top of an existing 10 percent tax. They will be up to 7.8% for Teslas made in China, the highest for manufacturers such as MG owner SAIC.

The decision to impose the new tariffs was not unanimous, with Germany and Hungary among the nations expected to have voted against them.

Germany has faced pressure from its auto industry, with companies such as Mercedes-Benz Group and BMW selling large numbers of cars in China, worried that the Chinese government could retaliate.

China is the biggest market for Volkswagen, which sold 3.23 million vehicles in 2023, up 1.6 percent from the previous year, despite what it called a “challenging market environment.”

BMW Group sold nearly 825,000 BMW and MINI vehicles in China last year, up 4.2 percent, while sales of Mercedes-Benz cars and vans fell 2 percent to about 770,000.

German Finance Minister Christian Lindner posted on X on Friday that the new tariffs “it shouldn’t start a trade war.”

“We need a negotiated solution,” he wrote.

Investors, however, appeared relaxed about a potential sell-off threat, with VW shares trading 2.5 percent higher, BMW up 1.8 percent and Mercedes-Benz up 1.5 percent ahead in Frankfurt on Friday.

Meanwhile, Hungary has bet big on electric vehicles under Viktor Orbán, with BYD setting up its first European manufacturing plant in the country.

The tariffs are meant to give European carmakers breathing room as they move towards selling all-electric vehicles by the EU’s 2035 target.

But it also risks retaliation from Beijing, with the Chinese government already opening investigations into a range of European products.

Slipping sales

Meanwhile, sales of electric vehicles in Europe are falling and many companies are growing nervous about the prospect of heavy fines if they fail to meet strict emissions targets that start next year.

The CEO of French carmaker Renault warned last month that if sales of electric vehicles remain at the same level, the European auto industry could face fines of up to 15 billion euros ($16.5 billion).

“Everyone is talking about 2035, 10 years from now, but we should be talking about 2025 because we are already fighting,” Luca de Meo told French radio in comments reported by Reuters.

Experts have warned that any changes to these emissions targets could hurt Europe’s already stuttering electric vehicle sales.

A report by NGO Transport & Environment found that while tariffs on Chinese electric vehicle companies would likely be effective, delaying 2025 emissions targets could prevent the launch of more affordable European electric vehicles, leaving consumers with less cheap electrical options.

The report says delaying that goal would cause European carmakers to continue to prioritize more profitable combustion engine vehicles, delaying the launch of cheaper electric vehicles and ultimately hurt sales.

“Higher tariffs for electric vehicles are right, but only in tandem with CO₂ targets for cars. They are part of a coherent industrial policy to boost the production of electric cars in Europe,” said Julia Poliscanova, Senior Director at Transport & Environment.

“The EU risks having the worst of both worlds if it delays its 2025 CO₂ targets while limiting affordable models imported from China,” she added.

The EU did not immediately respond to a request for comment from Business Insider.