Rules to Rivalry: EVs in Europe

Cover image by Nicole Lee

Rows of new BYD vehicles for export overseas. Image credit: Rest of World

With advancements in battery efficiency, charging infrastructure, and vehicle intelligence, the transition to electric vehicles (EVs) is no longer a theoretical one. EVs are now comparable to the traditional internal combustion engine vehicles in terms of performance and are, at the same time, associated with far fewer greenhouse gas emissions, making them essential to decarbonisation targets and energy independence. 

Countries across Europe, China, and North America have set targets to reduce or phase out new internal combustion engine (ICE) vehicle sales. Furthermore, the EV market has a projected market volume of US$1.1 trillion and unit sales of 30.03m vehicles by 2030. It is thus no wonder that the EU has adopted a protectionist stance on preserving its EV market. 

In Europe, BEVs (Battery Electric Vehicles) represented around 20% of all new passenger car registrations, up from 17% in January 2025, and double the market share recorded three years earlier. However, there is a substantial amount that is imported from China. 

Chinese EV exports to the EU grew by over tenfold in value terms from 2020 to 2023, this eroded one of the rare areas of trade where the EU actually runs a trade surplus with China.  ~Centre for Strategic and International Studies

The World of Tariffs

On October 4, 2023, in an attempt to protect its own out-competed EV industry, the European Commission officially initiated the anti-subsidy investigation. The investigation aimed to determine if Chinese EV manufacturers benefit from illegal state subsidies and if this causes injury to EU car manufacturers. 

By July 4, 2024, the European Commission (EC) imposed provisional countervailing duties of up to 37.6% on imports of BEVs from China. These duties are in addition to the standard 10% import duty. 3 months later, EU member states voted to approve the imposition of definitive countervailing duties on Chinese-made EVs. While Germany and several other nations voted against the proposal, it nevertheless received sufficient support to pass. 3 months on, the EC concluded its investigation and adopted a regulation imposing definitive countervailing duties for a period of five years. The rates are set at the company level, ranging from 7.8% for Tesla to 35.3% for state-owned SAIC Motor and other non-cooperating companies.

A comparison of tariffs that various automotive companies pay under the 2024 regulations. Data extracted from the European Commission. Image credit: Jiang Ruiyang

So how did the tariffs pan out for the EU?

The idea behind tariffs is simple: raise the prices of imported Chinese EVs, and fewer people will buy them, making space for its own brand of EVs in the market, all while receiving a sweet payout. However, the effect was counterintuitive, the Chinese EV demand in the EU have risen and not fallen.

A comparison of the retail prices of leading EV models after tariffs kicked in. Data extracted from CEPR. Image credit: Jiang Ruiyang

This could be due to two reasons. First, Chinese manufacturers are willing to bear the tariff costs and not pass them on to consumers in order to continue expanding market shares. Chinese EVs were already priced significantly higher in Europe than in China. The BYD Dolphin, for example, sold for ~$16,500 in China but ~$37,500 in Germany — providing a substantial profit buffer to absorb the new duties without raising consumer prices.

Second, competitive dynamics in the EU EV market have intensified broadly, with global and local manufacturers cutting prices across the board. The average electric car price decreased by €1,800 (-4%) to €42,700 in the EU last year. The fall was mainly driven by the introduction of affordable, small EV models in the “B-segment”, where the average price decreased by 13% in 2025. Cheaper mass-market models such as the Citroën ë-C3 and Renault 5 were launched just in time to help carmakers comply with the EU’s 2025 car CO2 target. The tariffs were thus rather ineffective in suppressing the market share of Chinese EVs. In April 2025, registrations of China-made EVs in Europe were up 59% year over year to nearly 15,300 units, despite the EU duties. 

In fact, the EU has inadvertently created a pathway for Chinese manufacturers to dominate a new segment. Since tariffs only apply to BEVs, Chinese automakers rapidly expanded their PHEV (Plug-in Hybrid Electric Vehicle) lineup for Europe. From around 27,000 PHEVs in 2024, the number of vehicles from China sold in Europe rose to around 160,000 in 2025 (Wicke, 2026). Furthermore, in February 2026, the BYD Seal U PHEV had 5,506 sales, making it the best-selling PHEV by exploiting the regulatory gap with vehicles that offer competitive specs at lower effective import costs. Thus, the tariffs not only failed to stop Chinese electrified-vehicle growth in Europe, but also led the Chinese to dominate the PHEV market.

The Price Undertaking

Following the tariffs, the EU and Chinese negotiators intensified talks to explore the possibility of a "price undertaking”, where Chinese carmakers agree to a minimum import price to avoid tariffs. In January 2026, the EC published a Guidance Document explaining how it will assess price undertaking offers from Chinese exporters. This provides a formal framework for replacing duties with minimum price commitments. 

Subsequently, in a landmark move just a month later, the EC  approved a request by Volkswagen's Cupra brand to exempt its China-made Tavascan SUV from 20.7% tariffs in exchange for a minimum price, annual quota and investment commitments. However, the specific details of the deal have not been publicly announced, and according to the European Commission’s official statement, Volkswagen committed to “investing in significant BEV-related projects in the EU with clearly defined milestones, supporting the EU’s industrial strategy and incentivising compliance with EU climate transition goals”.

This deal has been widely criticised. For instance, one glaring downside of transitioning to price undertaking is the loss of tariff revenue. By committing to minimum prices, the same higher prices translate into higher revenue for Chinese manufacturers rather than tariff revenue for the EU. This represents a loss of €2 billion per year, a sum that amounts to around 1.05% of the EU's annual budget. This sum could be used, for example, to enhance EU research and innovation programmes or to fund domestic EV ecosystems.

The bigger issue with the price undertaking is that it lowers pressure from Chinese manufacturers to invest in the EU. With tariffs, Chinese manufacturers are incentivised to open up factories within or near the EU in order to circumvent the high tariffs and achieve a higher profit margin. A case in point is BYD, the world’s largest electric car maker in 2025.

We are training ourselves to be more European in production. ~BYD executive vice president Stella Li

Indeed, BYD is building a factory in Hungary that has already kicked off trial production in January. Additionally, BYD has agreed to build an electric and plug-in hybrid car production facility with an annual capacity of 150,000 vehicles as well as a research and development centre in Turkey, with production planned to start by the end of this year. Notably, the agreement was made in July 2024, merely days after the EU raised tariffs on China-made EVs.

However, with minimum pricing, the tariffs that the Chinese manufacturers were required to pay originally are now replaced by a minimum price (price floor), so more sales profits will now be retained by the manufacturer. Hence, they can still continue to reap in high profit margins whilst retaining production in China.

Even though setting up factories in the EU could mean avoiding tariffs entirely, reducing logistical costs and greater political acceptance, producing locally in China still is the better option. There will be lower manufacturing costs, denser supplier networks, battery-cost advantages, and an established scale which allows manufacturers to churn out cars at the lowest prices. Hence, if the price undertaking deal offered by the EU is too generous and does not mandate high enough investment commitments, the urgency to build inside Europe will fall and in turn slow the pace at which Europe develops its EV infrastructure.

Despite the various downsides of the price undertaking, why did the EU decide to explore it?

Just four days after the EU approved EV tariffs on October 4, 2024, China announced brandy tariffs. The provisional tariff rates of 30.6% to 39% were comparable to the EU's EV tariff rates, sending a clear message that China would match the EU's actions. In September 2025, China imposed provisional anti-dumping duties of up to 62.4% on EU pork and pork by-products, effective for a five-year period. Two months later in December, China announced that it would impose provisional duties running from 21.9% to 42.7% on EU dairy imports which targeted a variety of unsweetened milk and cream and fresh and processed cheeses, including the iconic French Roquefort and Camembert.

These tariffs are imposed as a part of investigations launched by China’s Ministry of Commerce, who have found EU exporters to be “dumping” these products in China (sounds familiar?), causing substantial damage to domestic producers. The products targeted account for substantial export volumes. For example, French brandy shipments to China alone amounted to an estimated $1.7 billion last year and accounted for 99% of the country's imports of the spirit. China also accounts for a quarter of EU pork exports.

We believe that the severe economic impacts of these tariffs could have been the true reason why the EU decided to offer a price undertaking deal to Chinese EV manufacturers. China cut its final dairy duties to 7.4%–11.7%, less than half of the provisional rates announced in December 2025. The announcement was made 2 days after the EU approved the Volkswagen Anhui / CUPRA Tavascan price-undertaking arrangement on February 10. As such, the EU's switch to price undertaking could be interpreted as a sign of Brussels' attempt to ease trade tensions with China.

Nevertheless, it is important to note that the price undertaking can also come with annual volume limits, monitoring and anti-circumvention rules, and minimum EU investment commitments. Since there has not been a public disclosure of the price undertaking deal between the EU and Volkswagen's Cupra brand, it is difficult to accurately predict the actual effects of the switch to a price undertaking scheme.

Future of EVs in Europe

Why are Chinese EVs so popular in the EU?

To put it simply, you get more bang for your buck. Chinese EVs are cheaper and are equipped with highly integrated digital interiors that cater to modern consumer habits. Meanwhile, European manufacturers cater to the high-end market and struggle to produce affordable EVs. Their average price is closer to €50,000, while the average starting price for a BYD electric vehicle in Europe ranges between €30,000 and €45,000, with smaller models like the Dolphin starting around €20,000 to €34,000. This gap provided Chinese manufacturers with the opportunity to take over the EU market. 

The Chinese are able to produce at such low prices as they exhibit a high degree of vertical integration, controlling a significant portion of their supply chains from raw materials to finished vehicles. This sharply contrasts with the Western automotive industry's trend towards outsourcing major components to specialised suppliers.

Another factor is batteries, which represent the largest share of EV production costs. Chinese battery manufacturers have a significant cost advantage, primarily due to economies of scale and control over the raw material supply chain. In fact, European battery cells are on average 90% more expensive than those produced in China.

Future EV policies should target these areas in order to narrow the price disadvantage of EU-made EVs. Currently, the proposed Industrial Accelerator Act requires that components of an EV must be at least 70% made in Europe (excluding batteries) to qualify for subsidies. If this act is passed, European manufacturers would have a greater incentive to roll out EVs that are competitively priced.

However, the EV adoption rate in the EU could also be curbed due to the union's reduced commitments to its green transition. The key reason why EVs have experienced such a high growth in the EU is due to the bloc’s 2035 target for zero-emission car and van sales, where automakers need to ensure that 90% of the cars they put on the market by 2035 are zero-emission. This policy has pressured manufacturers to invest significantly in EV development.

In December 2025, the European Commission proposed to cut back this target from 100% to 90% and introduce new allowances for hybrids and fuels. This proposal came in a year where EV sales have again been breaking records in just about every European country. At a time when the EV industry needs a boost, it seems that the EU would rather offer a sedative. Such a change is likely to reduce the urgency of European automakers to commit to EVs and allow Chinese manufacturers to pull even further ahead in this competitive race.

The transition to electric transport is inevitable, and the only uncertainty is whether Europe will be the leader or follower. Ultimately, trade policies only matter in the short term. European manufacturers cannot forever depend on government policies to remain competitive. Apart from demand side policies, European policymakers should consider investing in higher quality EV infrastructure and manufacturing processes. If the EU does not take the lead in building its dream of a robust domestic EV ecosystem, then BYD will do it for them.

Image credit: The Interface

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