With all-electric vehicles (EVs) becoming more and more widespread, all car manufacturers, without exception, are investing in their electric fleet. Among them, the Chinese-owned Polestar – which used to be a Swedish company – and BYD, which now threatens Tesla in terms of absolute number of electric car sales, have made tremendous progress in the last couple of years. The investment of the Chinese automotive giants has begun to cause geopolitical implications in the West, as the transition to green economy has led an increasing number of western consumers to prefer electric vehicles; more and more, however, are made in China.

At the moment, there is an influx of EV cars in Australia, as more than 86% of EV cars on Australian streets are made in China; crucially, this does not only include Chinese brands, but also major European ones, such as BMW, Volvo, and beyond. Given the uneasy relationship between Australia and China – virtually on all levels – the influx of Chinese EV cars in the country is yet another reason that complicates things. However, if China’s success in EV technology causes some concerns for the Australian government, it clearly threatens the EU’s interests, in more ways than one.

Undoubtedly the Chinese automotive industry has made impressive progress in terms of electrification. On the one hand, companies like BYD, Nio, and Xpeng have shattered all sales records, giving China a huge technological advantage – but also an export lifeline at a difficult time for Chinese exports. On the other hand, the fact that China has a huge stockpile of the raw materials needed to make batteries, such as those used by EVs, give the Chinese automotive industry the potential to gain an unprecedented advantage in terms of their manufacturing, and their distribution.

China has the resources to maintain its leadership in the sale of electric batteries, which makes Chinese companies much more competitive than their European or even American counterparts. The clear international shift towards electric cars is expected to solidify China’s competitive advantage in the production and sale of EV batteries, at a time when many of the world’s best engineers in this particular field are choosing to work in China, rather than the West. This only means that EV cars made in Europe are becoming less popular, while Europe is losing some of its brightest engineers, who choose to work in China instead.

The EU’s response

For these reasons, China is able to produce – and therefore export – high quality electric cars at relatively low prices, disrupting the European car industry, threatening both the sales of European giants, and, in the long run, causing the loss of many European jobs. At the moment, Chinese electric cars occupy about 2.8% of the European market, when just two years ago they occupied 1%. According to European Commission’s estimates, if there is no change in the regime of Chinese exports to the EU continues unabated, their share within the European market could reach up to 15% within the next two years.

This is why the head of the Commission, Ursula von der Leyen, announced that Brussels will launch a thorough investigation regarding the increasingly steeper access that the Chinese car industry has achieved to the European economy. The European Commission emphasizes heavily on the significance of this matter, which is reflected by von der Leyen’s announcement that European producers operating in China and exporting to Europe will be treated by Brussels as companies of Chinese interests. At the moment, the Commission is considering increasing tariffs on Chinese cars to more than the existing 10%, but the question of battery imports remains open, as the imposition of similar tariffs on batteries would create a major problem for the European car industry, at least in the medium term.

China seeks German help to prevent the rise of European tariffs.

Faced with the – increasingly likely – possibility of a trade war between the EU and China, Beijing is trying to use the special trade relationship it has developed with Berlin to appease Brussels. In particular, the Chinese President, Xi Jinping, is trying to put pressure on the German Chancellor, Olaf Scholz, so that the latter can exert pressure within the EU regarding the possibility of imposing trade sanctions – and additional tariffs – on the products that China exports. The Chinese President called on Scholz to ensure that trade between the EU and China will continue to be governed by the values of free market and fair international competition, but also to ensure the stability of trade relations between the two sides.

Xi Jinping’s choice to put pressure on Scholz is clearly not a coincidence, as over the past few years, many German giants have made landmark investments in China. Currently, more than 5,000 German companies operate in China – in every conceivable sector from electrical appliances to sportswear – while more than ⅔ of German foreign investment was directed towards the Chinese manufacturing sector in 2022. However, Beijing’s main leverage against Berlin is the impressive activity of the German car industry in China. Today, Volkswagen, BMW and Mercedes rely on the Chinese market for ⅓ of their sales, which means that their international competitiveness – and especially vis-à-vis the French group Stellantis, which owns brands such as Peugeot, Citroen, Jeep, Alfa Romeo, – and Opel – is threatened by a potential trade war between the EU and China.

Yet, if this war does arise indeed, then it will be the result of China’s success in developing electric cars, but also the rapid development of Chinese EV technology. In any case, the scenario in which German cars produced in China are treated as Chinese by the EU, will harm the direct interests of German car manufacturers. Knowing that the German government is keen to prevent this from happening, Beijing will continue to put pressure on Berlin, yet Brussels appears to be much closer to Washington’s logic in terms of limiting the Chinese commercial and technological advantage in automobile electrification.

The road ahead

What clearly complicates things is China’s ambivalent geopolitical strategy. On the one hand, China has – subtly – take the Russian side regarding the war in Ukraine, while it has refrained from supporting Israel, like the EU has done, in the current war in the Middle East. On the other though, China has not directly threatened the EU’s geopolitical interests in any way, while it remains one of the bloc’s most important trading partner virtually on all critical sectors. In that sense, cutting off ties with China would be a suicidal act for Brussels, which only means that the EU’s leadership must find a fine line between protecting the common market from an influx of cheap Chinese EV cars – and components – and maintaining a working and profitable relationship with Beijing. Chinese cars have not yet really accessed the Greek market, despite the fact that the Greek government incentivizes the purchase of EVs heavily; currently, Greeks mostly prefer Japanese and Korean EVs, but it’s a matter of time until they also opt for Chinese ones, if they become more available.

In this political time, this seems impossible, yet it is also the only way forward for the EU, if it wants to maintain its economic superpower status. Given that a potential change in the US Presidency – as Donald Trump’s re-election seems increasingly likely – will probably cause a rapid deterioration in transatlantic relations, Brussels must find their own way to deal with Beijing and make the most out of this – politically difficult, but economically profitable – relationship. In any case, providing incentives for the production of EV technology in Europe is absolutely necessary, as is the “repatriation” of German automobile companies. If the EU decides to enforce tariffs against Chinese EV technology, then it should also ensure that European consumers will have access to EV cars which will be made in Europe. This will truly be a win-win scenario for the EU, on both an industrial, and a political level.