China's Automotive Industry on Investment Brake: EU Tariffs Cause Tensions

China's government has instructed its automobile manufacturers to suspend significant investments in EU countries that support new tariffs on Chinese electric vehicles. This decision is a direct response to the introduction of new EU tariffs of up to 45.3 percent. These measures followed a year-long investigation and have the potential to significantly impact the market. At a meeting of China's Ministry of Commerce on October 10, the country's leading automobile manufacturers, including BYD, SAIC, and Geely, were informed that they should freeze their plans for substantial investments, including the construction of factories, in countries that support the tariff proposal. This directive reflects China's attempt to exert pressure during negotiations with the EU over possible tariff alternatives. The aim is to prevent a significant decline in exports of electric vehicles to this crucial market. In 2023, over 40 percent of Chinese electric vehicle exports went to Europe. Given that the US and Canada currently impose 100 percent tariffs on Chinese electric vehicles, a decline in exports to Europe could exacerbate the existing overcapacity issues in the domestic industry. Italy and France, although welcoming investments from China, have expressed concerns about the impact of inexpensive Chinese electric vehicles on European manufacturers. While the Chinese state-owned company SAIC is selecting a location for a new electric vehicle plant in Europe and planning a parts center in France, Italy is negotiating with manufacturers such as Chery and Dongfeng Motors over potential investments. Meanwhile, BYD is building a facility in Hungary and is considering relocating its European headquarters there for cost reasons. This week, the EU and China agreed to continue technical discussions on possible alternatives to the Chinese electric vehicle tariffs. However, the European Commission emphasizes that "significant gaps" remain, despite eight rounds of talks conducted with Chinese officials so far.