Between protection and openness: will the European car industry withstand Chinese pressure?

The electric car, which only a decade ago was considered an expensive niche, has since grown into a segment that increasingly shapes the European market. In 2024 almost one in seven new cars registered in the European Union was fully electric, although growth temporarily stalled. Particularly instructive is the example of Norway, where the state has favoured electric vehicles through taxes for decades, so that petrol and diesel cars have become a rarity among new registrations. How sensitively the market reacts to political signals was shown in turn by Germany: after the government unexpectedly abolished the purchase bonus at the end of 2023, sales of purely electric cars fell significantly the following year.

At the same time, more and more Chinese manufacturers are pushing into the European market, above all BYD, which at times overtook Tesla in global sales of electric cars. Their competitive advantage rests not only on lower costs for labour and energy, but above all on the fact that China controls almost the entire value chain of batteries. Added to this is the fact that Beijing has been supporting the sector with extensive subsidies for years, which according to many observers has led to considerable overcapacity.

In autumn 2023 the European Commission launched an anti-subsidy investigation, because it suspected that Chinese electric cars were being artificially made cheaper through unfair state aid. That is why since the end of October 2024 the EU has been imposing countervailing duties, which amount to up to around 35 per cent and are added to the regular import duty of ten per cent. Tellingly it was the German car industry that sharply criticised the duties, as it feared Chinese countermeasures and still earns a considerable part of its profits in China. Supporters of the duties counter that without protective measures Europe faces a development like the one once seen in the solar industry, which moved to China. Whether the duties will achieve their aim is however disputed, because several Chinese groups are already building their own plants in Hungary and Turkey, with which they could circumvent the levies.

The upheaval can be seen particularly clearly at Volkswagen, Europe's largest car maker, which for decades earned extremely well on the Chinese market. There the group lost considerable market share within a few years, because domestic suppliers have caught up and offer vehicles with sophisticated software at significantly lower prices. At the same time, high costs weighed on the German plants, so that in 2024 management for the first time openly considered closing sites in Germany. At the end of 2024 the company and the union finally reached a compromise: compulsory redundancies are to be avoided, but in return more than 30,000 jobs in Germany are to be cut by 2030.

For the future of electric mobility the question of whether the charging infrastructure keeps pace with the growth in the number of vehicles could be at least as decisive as trade policy. The number of public charging points in the EU is admittedly growing rapidly, but a large share of them is concentrated in just three countries, namely the Netherlands, Germany and France.

The question thus remains open whether European car makers will manage to close the gap in batteries and software in time. Some rely on cooperation with Chinese partners in order to benefit from their pace of development; others are investing billions in their own battery factories, whose profitability is by no means guaranteed. Economists also point to a fundamental dilemma: the more Europe shuts itself off, the more expensive electric cars are likely to remain, which in turn could slow down the desired shift away from combustion engines. Whether the European market will be shaped by fair competition or by a spiral of mutual trade barriers will depend on whether Brussels and Beijing find a sustainable compromise.