This tariff war transcends mere trade interests between China and Europe, revealing deep contradictions in the restructuring of the global electric vehicle industry. When environmental ideals clash with trade protectionism, and technological revolutions collide with geopolitics, a battle that will shape the future industrial landscape is quietly unfolding.

Before the fall of the Berlin Wall, many East Germans were proud of their Trabant cars. However, when the wall came down and they saw brands like Volkswagen, Mercedes-Benz, and BMW, they realized just how outdated the Trabant had become.

Today, Europe and the United States are attempting to erect their own electric vehicle 'Berlin Walls,' aiming to suppress China, the leader in electric vehicle development, through high tariffs and other means.

In response to various unreasonable measures from Europe and the United States, China and its related enterprises have not sat idly by. Instead, they have actively taken countermeasures and pursued cross-border rights protection, resolutely safeguarding their legitimate rights and interests.

Six Major Chinese and Foreign Automakers Collectively Sue the EU

At the beginning of 2025, several Chinese and foreign automakers took their grievances to the EU Court of Justice, protesting the EU's imposition of tariffs on electric vehicles made in China.

On January 21, China's three major local automakers – BYD, Geely, and SAIC – officially initiated judicial proceedings against the European Commission (hereinafter referred to as the 'Commission'), which had implemented anti-subsidy measures. They brought their case to the Court of Justice of the European Union to safeguard their legitimate rights and interests.

Subsequently, three major European and American multinational automakers – BMW, Tesla, and Mercedes-Benz – also successively filed lawsuits against the EU's imposition of tariffs on electric vehicles made in China.

Notably, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, an industry organization representing Chinese electric vehicle manufacturers, submitted a complaint to the General Court of the European Union on behalf of authorized enterprises on January 22. This complaint firmly defended the legitimate rights and interests of Chinese electric vehicle enterprises.

The fundamental reason for these automakers to file lawsuits is the Commission's insistence on trade protectionism and the erroneous practice of imposing anti-subsidy taxes on Chinese electric vehicles.

Previously, on October 29, 2024, after more than a year of anti-subsidy investigations, the Commission issued a final ruling announcement. It decided to impose a final anti-subsidy tax on electric vehicles originating in China for a period of five years.

Among local automakers, BYD was imposed an anti-subsidy tax rate of 17%, Geely was 18.8%, and SAIC Group faced a maximum rate of 35.3%. Among multinational automakers, Tesla's Shanghai company applied for and received a separate tax rate of 7.8% from the Commission. In contrast, BMW's electric MINI cars imported from China are subject to a punitive tariff of 20.7%.

Other enterprises that cooperated with the EU investigation were imposed an average tariff of 20.7%, while those that did not cooperate faced a maximum tariff rate of 35.3%.

In response, China's Ministry of Commerce, Ministry of Foreign Affairs, and other government departments, along with industry organizations such as the China Association of Automobile Manufacturers, the European Union Chamber of Commerce in China, and the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, have expressed strong protests. They believe that there are many unreasonable and non-compliant aspects in the EU's investigation, and the final ruling results are not objective and extremely unfair to Chinese automobile enterprises.

Many enterprises also feel unfair about the preferential treatment enjoyed by Tesla. The largest export market for Tesla vehicles made in China is the EU. During the investigation, Tesla filed an individual examination request and was ultimately imposed a tariff of only 7.8%.

China has always been committed to reaching a solution acceptable to both parties through dialogue and consultation. It has proposed a price commitment plan, and the two sides have conducted several rounds of intensive consultations on this matter. However, as of the time of this article's publication, no substantial progress has been made.

Currently, the industry is eagerly anticipating a breakthrough in negotiations between the two sides. The European Union Chamber of Commerce in China published an article on January 24 stating that despite the EU's imposition of tariffs in October last year, China's electric vehicle shipments to the 27 EU member states still showed a "significant increase" in December last year.

The burden of punitive tariffs may ultimately be passed on to consumers, and cooperation between China and Europe in the electric vehicle market and industrial chain is imminent.

Behind the EU's 'Industrial Defense War'

Looking beyond the surface, the EU's tariff action against Chinese electric vehicles is ostensibly a response to 'unfair subsidies.' However, in reality, it is a carefully planned 'industrial defense war.'

In recent years, China's electric vehicle industry has flourished and achieved remarkable results in the European market. According to a report by the European Commission, the market share of electric vehicles made in China in Europe surged from 3.9% in 2020 to 25% in 2023. Moreover, the average price per vehicle is 20% lower than that of European competitors.

To avoid losing more market share to Chinese enterprises, the EU hopes to protect its local automobile industry by imposing tariffs. Simultaneously, the EU aims to force Chinese automakers to establish more production bases in Europe through tax increases. This would increase local employment opportunities, drive the development of local upstream and downstream industries, and allow local manufacturers to obtain more benefits.

Additionally, the automotive industry is a pillar industry in Europe, and it is facing the pressure of the goal of banning the sale of fuel vehicles by 2035. The EU hopes to accelerate the development of its electric vehicle industry by subsidizing the purchase of domestic electric vehicles and restricting the import of Chinese electric vehicles. This strategy aims to achieve the goal of electrification transformation.

However, there are at least three contradictions in the EU's decision-making that cannot withstand scrutiny:

The first is the paradox between environmental protection goals and trade barriers: The EU's policy of banning the sale of fuel vehicles by 2035 aims to promote the popularization of electric vehicles. However, its local production capacity can only meet 60% of demand, and tariffs will directly push up the cost of transformation.

The second is the rift between the globalization of the industrial chain and local protection: China accounts for 70% of global power battery capacity. Models such as the BMW iX3 and Tesla Model Y, which are 'Made in Europe,' rely heavily on Chinese supply chains. Tariffs may undermine the competitiveness of European factories.

The third is the controversy over legal procedures: The EU initiated an investigation based on the Foreign Subsidies Regulation (FSR). However, its method of directly equating Chinese state-owned bank loans with 'subsidies' was criticized by Pascal Lamy, former Director-General of the World Trade Organization (WTO), as a 'rise in unilateralism.'

In fact, there are also many objections within the EU regarding the imposition of tariffs. The German Association of the Automotive Industry, Hungarian government officials, Mercedes-Benz, BMW, and many others have expressed opposition. They believe that this will harm the interests of the European automotive industry and consumers. The French newspaper Le Monde recently published an article stating that imposing tariffs on China will not make Europe the champion of electric vehicles.

'Kill a thousand enemies and lose eight hundred of your own.' The EU's anti-subsidy measures imposing tariffs on electric vehicles made in China are a double-edged sword. While protecting its domestic automotive industry, it also seriously damages the interests of local enterprises.

Oliver Blume, CEO of the Volkswagen Group, admitted that the production cost of its ID.3 is 40% higher than that of Chinese competitors. Mercedes-Benz was forced to postpone its electrification investment plan. BMW's protest is more symbolic – its iX3 produced at the Shenyang plant in China is sold back to Europe. Tariffs will cause it to lose the price advantage in competition with the Tesla Model Y.

As the only American automaker to join the lawsuit, Tesla's Shanghai Gigafactory has an annual production capacity of 950,000 vehicles, 30% of which are supplied to the European market. Tesla CEO Elon Musk lashed out on platform X: 'This is economic suicide. Europe is killing its electric vehicle future.'

According to data released by the European Automobile Manufacturers Association (ACEA) on January 21, the sales of passenger cars in the EU totaled 10.63 million units throughout 2024, a slight increase of 0.8% year-on-year. Among them, pure electric vehicles were 1.448 million units, a year-on-year decrease of 5.9%; plug-in hybrid vehicles were 759,000 units, a year-on-year decrease of 6.8%.

The above data forms a sharp contrast with the steady growth of the EU's electric vehicle market in previous years. Obviously, it is neither wise nor a solution for the EU to suppress Chinese electric vehicles.

This move by the EU not only involves the future direction of the automotive industries of both parties but also has a profound impact on the global electric vehicle market structure and international trade order.

From a deeper perspective, the essence of this tariff dispute is a collision between the guardians of the old order and the revolutionaries of new technologies. Perhaps, as the Roland Berger report states: 'Tariffs can only win time, and the real victory or defeat will be decided on three battlefields: cost control, software ecology, and energy networks.'

In the face of the looming climate crisis, no country can monopolize the dividends of green transformation. Cooperation, rather than confrontation, is the ultimate answer to the civilization of electric vehicles.

The 'Europeanization' Breakthrough of Chinese Automakers

Facing the new 'Berlin Wall' of the electrification era, Chinese automakers caught in the vortex have not chosen to remain silent. Instead, they have taken up legal weapons to defend fairness and justice.

As early as after the issuance of the final ruling document last year, SAIC Group, which faced the 'top-level' tax increase, immediately stated its intention to take necessary legal measures. It filed a lawsuit with the Court of Justice of the European Union to safeguard its legitimate rights and interests.

Today, SAIC Group, Geely, and BYD bravely stand up and file lawsuits. This is not only to safeguard their legitimate interests but also to convey a firm voice against trade protectionism to the international community.

Simultaneously, to avoid tariffs, Chinese automakers have accelerated the pace of establishing factories in Europe.

As a leader in the field of new energy vehicles, BYD officially commenced production at its first European passenger car factory in Szeged, Hungary, in January 2024. The factory has a planned annual production capacity of 100,000 vehicles and is expected to start capacity expansion by the end of 2025. Additionally, to address import tariffs on electric vehicles made in China, BYD is establishing a new supply chain in Europe. It is assembling battery packs in Hungary and Turkey and only importing battery cells from China.

Through localized production, BYD not only avoids Europe's import tariffs of up to 10%-20% but can also quickly respond to changes in European market demand. This allows it to adjust product configurations and supply in a timely manner. For example, in response to European consumers' high requirements for driving range, BYD optimizes battery selection and vehicle tuning by leveraging local supply chain advantages. This enhances product competitiveness.

Chery chose to partner with local collaborators. In April 2024, Chery Automobile signed an agreement with Spanish automobile company Ebro-EV Motors to establish a joint venture in Barcelona, Spain, to produce new electric vehicles. In November of the same year, the first product of the joint venture factory, the EBRO brand S700, rolled off the production line. As a result, Chery has become one of the first Chinese automakers to establish a joint venture factory in Europe, setting an example for cooperation between Chinese and Spanish enterprises.

At the same time, automakers such as SAIC and Geely are also planning to establish factories, and XPeng Motors has publicly stated that it is actively assessing the feasibility of establishing local manufacturing capabilities in Europe.

Moreover, supply chain enterprises have taken the lead. Power battery suppliers such as CATL and Guoxuan High-Tech have completed factory construction in Europe. This achieves localized production and ensures the timeliness and stability of battery supply, meeting the electrification transformation needs of overseas automakers. Simultaneously, through joint research and development with overseas automakers, they continuously improve battery technical performance, such as increasing energy density and shortening charging time. This promotes technological progress in the global new energy vehicle industry.

In the competition in the European market, Chinese automakers have gradually realized that relying solely on price advantages is no longer feasible. They must comprehensively improve in terms of product quality, technological innovation, brand marketing, after-sales service, and other aspects. This will help them meet the stringent requirements of European consumers and truly gain a firm foothold, realizing the transformation from 'intruders' to 'rooters.'

In the new wave of Chinese automakers venturing overseas, the shift from mere vehicle exports to a diversified array of models, encompassing localized production and mutually beneficial collaborations, has emerged as an inexorable trend. Among these strategies, the establishment of overseas factories enables Chinese automakers to seamlessly integrate into local markets, facilitating the transition from 'Made in China' to 'Made in Local'. This not only bridges the gap with consumers but also enhances brand loyalty and quickens market responsiveness, thereby serving as a pivotal strategic pillar for Chinese automobiles in their global expansion.

Confronted with trade barriers, Chinese automakers have demonstrated wisdom and courage in breaking the deadlock. On one hand, they actively engage in mediation and file legitimate complaints to secure a fair trade environment. On the other hand, they accelerate their overseas expansion and establish local roots to mitigate the adverse effects of trade barriers. In terms of technological R&D, they continue to escalate investments, address the shortcomings of traditional fuel vehicle technology, and innovate incessantly in the realms of new energy vehicles and autonomous driving, thereby narrowing the gap with international benchmarks. At the brand-building front, they make concerted efforts across product quality, brand communication, cultural integration, and more, narrating the tale of Chinese automobile brands to the world, reshaping their brand image, and elevating brand value.

While the journey of Chinese automobiles venturing overseas is fraught with challenges, the outlook remains promising. The remarkable achievements of recent years have laid a robust foundation for future development. Today, Chinese automobiles are not only flourishing in emerging markets but are also making inroads into developed markets such as Europe and the United States, redefining the global automotive landscape.

Note: This article was originally published in the 'Hot Spot Tracking' section of the March 2025 issue of 'Auto Review' magazine. Stay tuned for more updates.

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Article: Auto Review

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