The EU just made Chinese EVs a lot more expensive — and created a new threat for European automakers

China is Volkswagen’s single largest market.

Europe is clamping down on Chinese electric cars — but the move to protect the continent’s automakers could create a new problem for the likes of Volkswagen and BMW.

The European Union voted to impose sweeping tariffs on Chinese EV makers on Friday as it seeks to protect its automotive industry from what the bloc claims are unfairly subsidized cheap Chinese electric vehicles.

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

The European tariffs come after the US introduced its own trade restrictions against Chinese EVs earlier this year.

That move was criticized by Elon Musk, who told a conference in Paris that neither he nor Tesla had asked for the tariffs.

The Tesla CEO had previously warned that Chinese EVs would “demolish” their Western competitors if no action was taken, but said in May he was not a fan of tariffs and that Tesla competes “quite well” in China without them.

Retaliation fears

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

Germany has faced pressure from its automotive industry, with companies like Mercedes-Benz Group and BMW that sell large numbers of cars in China concerned the Chinese government might retaliate.

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

The BMW Group sold almost 825,000 BMW and MINI vehicles in China last year, up 4.2%, while Mercedes-Benz car and van sales dipped 2% to about 770,000.

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

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

The tariffs are meant to provide European carmakers breathing space as they transition to selling all-electric vehicles by the EU’s target of 2035.

But they also run the risk of Beijing retaliating, with the Chinese government already opening investigations into a range of European products.

As tariffs will likely make it harder for Chinese EV companies to continue their aggressive expansion in Europe, it could also limit options for European customers seeking cheaper electric vehicles.

Both BYD and Chinese EV startup Nio have announced plans to sell affordable EVs in Europe, with BYD’s $10,000 Seagull hatchback set to arrive on the continent in 2025.

Sliding sales

Meanwhile, EV sales in Europe slumping, and many companies are growing increasingly nervous about the prospect of big fines if they fail to meet strict emissions targets that kick in next year.

The CEO of French carmaker Renault warned last month that if EV sales stay at the same level, the European car industry may face fines of up to 15 billion euros ($16.5 billion).

​​”Everyone is talking about 2035, in 10 years, but we should be talking about 2025 because we are already struggling,” 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 EV sales.

A report from the NGO Transport & Environment found that while tariffs on Chinese EV companies would likely be effective, delaying the 2025 emission targets could hamper the rollout of more affordable European EVs, potentially leaving consumers with fewer cheap electric options.

The report said that delaying this target would cause European car manufacturers to continue prioritizing more profitable combustion engine vehicles, delaying the rollout of cheaper EVs and ultimately hurting sales.

“Higher EV tariffs are right but only in tandem with the car CO₂ targets. They are part of a coherent industrial policy to boost electric car production in Europe,” said Julia Poliscanova, a senior director at Transport & Environment.

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

The EU did not immediately respond to a request for comment from B-17.