A Trade Dispute Reshaping the Global EV Market

The global electric vehicle (EV) landscape is undergoing significant shifts as trade tensions between the European Union (EU) and China escalate. At the heart of the conflict is the EU’s concern over Chinese government subsidies, which allegedly give Chinese EVs an unfair pricing advantage in Europe. The dispute has already led to retaliatory measures from both sides and is now pushing the EU to explore new solutions that could reshape global competition in the EV industry.

In September 2023, European Commission President Ursula von der Leyen publicly criticized China for heavily subsidizing its EV industry, claiming that the artificially low prices were undermining fair competition. As a result, the EU began imposing countervailing duties ranging from 17% to 35.3% on Chinese EVs in November 2024, on top of the existing 10% import duty.

China responded by raising tariffs on French products such as brandy, escalating the trade confrontation. The impact has been tangible: Chinese EVs have lost market share in Europe, while French spirits have seen declining sales in China.

However, the EU’s tough stance has sparked divisions within the bloc. Germany, home to some of the world’s leading carmakers, has voiced strong opposition to the tariffs. The German Automotive Industry Association (VDA) has warned that retaliatory measures from China could severely hurt German automakers, which derive over 30% of their global sales from the Chinese market. As a result, Germany has emerged as a vocal opponent of further trade restrictions.

A Potential Compromise: The Minimum Price Proposal

To ease internal tensions and avoid prolonged economic damage, the EU is now considering a more flexible approach. According to recent reports, EU officials are drafting a plan to replace punitive tariffs with a "minimum price mechanism" for Chinese EVs. Under this system, Chinese automakers would be free to set their own prices, but must comply with a minimum threshold. Any profit above that price would remain with the companies, with no extra payments to the EU. In return, China would be expected to commit to increased investment and technology transfers within Europe.

This shift reflects a growing realization within the EU that strict protectionism may backfire. “What we need is fair competition, not trade barriers,” one EU trade official said. On the other side, China has also shown a willingness to de-escalate. Chinese Minister of Commerce Wang Wentao and EU Trade Commissioner Maroš Šefčovič have held multiple rounds of negotiations, signaling openness to a pragmatic resolution.

The Broader Context: U.S. Policy and Global Implications

The evolving U.S. trade stance has added further complexity. The Trump administration’s recent decision to raise tariffs on imported vehicles to 25% has forced European automakers such as Volkswagen and Audi to suspend exports to the U.S., making the Chinese market even more critical for their global strategies. This has added pressure on the EU to adopt a more balanced approach toward China.

Meanwhile, Tesla has stopped selling two U.S.-made models—Model S and Model X—in China. These vehicles, produced exclusively in the United States, are no longer available for order on Tesla China’s website. In contrast, the Shanghai Gigafactory continues to manufacture the Model 3 and Model Y for both domestic sales and exports to Europe. According to the China Automobile Dealers Association, Tesla exported 1,553 Model X and 311 Model S vehicles to China in 2024.

A Defining Moment for the EV Industry

This trade standoff could have far-reaching consequences. If the minimum price scheme is implemented, it could diminish China’s pricing advantage in Europe while offering more predictable market access. Additionally, it may accelerate supply chain localization. Chinese automakers such as BYD and Geely are already evaluating the feasibility of setting up manufacturing operations in Europe—moves that could further regionalize the global EV supply chain.

On a macro level, the dispute highlights the emerging dynamics of global green industrial competition. As countries ramp up support for their domestic EV industries, they must strike a balance between industrial policy and fair trade. The ongoing China-EU dialogue may offer a potential model for resolving such disputes in a rapidly evolving green economy.

Industry analysts expect a transitional agreement to be reached within the next 6 to 12 months. However, the long-term outlook for global EV trade regulations remains uncertain.

As the industry stands at a crossroads, governments, automakers, and consumers alike must adapt to a changing landscape. For both China and the EU, the outcome of current negotiations will not only determine near-term trade flows but also influence the future framework of the global green economy.

Source: Europe M&A and Investment & European Commission