Chinese cars and factories flooding EU market, and blows up protectionist tariff system
Bullets:
In 2024, the European Union and the United States enacted high tariffs on Chinese vehicles, to protect domestic automakers.
In the US, the tariff schedules on Chinese EV's were 100%. In Europe, the tariff rates varied, from 17% to 38%.
The EU tariffs, it was believed, were too high for Chinese companies to profitably sell cars in the EU markets, and analysts expected Chinese brands to pivot to more friendly countries.
But China's carmakers doubled down in Europe instead, and exported record volumes of hybrid vehicles, which were exempted from the tariff systems. They also broke ground on major factory projects, which will come online beginning next year. At that time, all that production will be tariff-exempt.
Regulators in Europe face two major problems: they need mass-market adoption of new-energy vehicles if they hope to meet their strict emissions standards, and it is only Chinese cars that build at price points that will attract millions of new buyers.
But they will do so at the expense of European and American and other Asian automakers, who cannot compete with Chinese brands on price.
Report:
Good morning.
A year ago, the European Union put high tariffs on Chinese electric vehicles. They were targeted at China’s top brands, BYD, Geely, and others. They were intended to “level the playing field”, because Chinese carmakers enjoy significant advantages in manufacturing cost, compared to foreign brands. Those efficiencies result in higher profit margins in global markets.
There is a price war underway here in China, and prices are falling. So Chinese automakers are strongly motivated to sell to markets outside China, where the profit margins are a lot higher. Profits are 25% or more when exporting, even after counting freight costs.
In the US, the tariffs on Chinese cars were set at 100%, and other rules have more or less closed off the North American market. But these tariff rates from the European Union—up to 38%--meant that Chinese profit margins would go away. That was the conventional wisdom, such as what we find here in EV Magazine. Protectionist policies will impact car sales across the EU and in the US, so China will focus on opening markets in the BRICS countries—those countries have large populations, their economies are developing quickly, and they are more friendly to China. The implication here is that China will be slowed down by the new tariffs in Europe, and especially in the United States, so Chinese companies will take the path of least resistance, and pivot to other markets in the BRICS countries or to markets elsewhere.
This chart is Chinese passenger car exports—these are all vehicles, not just EV’s, and in the second half of 2024, export volumes plunged, from an all-time high of 525,000 units, to around 375,000. But they have since recovered, and are again back to over 525,000 units, just slightly below the all-time high last summer. So one might conclude that China’s strategy to shift away from Europe and to the BRICS countries has been successful, and explains the trends here.
But that’s not what happened. Chinese brands doubled down in Europe, and their tariffs didn’t matter much, which is what we anticipated previously. BYD is now the most successful new energy vehicle, and April 2024 was prior to the new EU tariffs, and April 2025 saw a 359% increase. That’s more than a quadrupling in sales, after the tariffs. BYD blew past Tesla in Europe, so this is a watershed moment there, according to this analyst.
BYD is a relatively new brand in Europe, and has been selling there for just three years. So all this growth is after the tariffs. And it’s also before BYD introduces the Dolphin Surf. The Surf is the European version of BYD’s best-selling car in China, the Seagull. The Seagull retails here for under $10,000, and the Surf will be offered in the EU for under 20,000 euros. That price is far below their competition from Volkswagen, which is 30,000 euro.
“This is a very competitive car”, and it’s “going to shake up the small car market.” It will “alarm” European brands, who haven’t been successful, yet, in the small car market at attractive price points.
Other Chinese brands, Dacia and LeapMotor, also will sell in the EU for under 20,000 euro. Models from Europe, Japan, and Korea will hit the market over the next 18 months, but most of them are going to start at 25,000 euro—a premium, then, over the Chinese models that are there now.
An important factor contributing to the unexpected success of these Chinese brands, is that the European Union’s tariffs targeted Chinese EV’s, but left hybrid vehicles alone. So this was the pivot from Chinese carmakers. It was not from the EU to other countries, but from electric-only to hybrid vehicles. Two thirds of the cars sold by Chinese companies in Europe were hybrids, and even fuel-burning engines. Those sales were up 50% year over year, and more are coming.
What’s also coming to the EU is new factories for Chinese cars. BYD, for example, will open major plants in Hungary and Turkey next year, and once production gets underway there, they’ll never pay EU tariffs again. BYD is making lots of money in Europe now, even with the tariffs, and beginning next year will never worry about them again.
CNBC sums up everything nicely in one page. BYD’s success is despite punitive tariffs—which were 17%. Everyone thought that would help Tesla and the European carmakers. And the tariffs had an impact in the beginning—that’s the chart—but then Chinese companies just sent over hybrid vehicles instead. China’s the world leader in pure electrics, but they also lead in hybrids. So they filled up their ships with hybrid vehicles and sent those instead.
Regulators in the EU have two big problems here. They’re trying to fix the holes in their tariff regime, and have proposed just scrapping it entirely. The plan now it to getting everyone to agree on a minimum price. Nobody is quite sure what that means. Setting a minimum price on Chinese-built EV’s is intended to stabilize the market by preventing underselling, but minimum prices will discourage buyers. That’s a tricky problem—there is giant demand at these price points, and that demand is being served only by Chinese companies. European consumers want smaller EV’s—they’re much more suitable for short trips, and for driving on European streets, which are narrow.
European governments also have emissions targets that can only be met through mass-market adoption of electric vehicles, and if the prices are too high, buyers won’t make the switch.So EU regulators need lower prices on electric cars so more people buy them.But when BYD and other Chinese companies get their factories in Europe turned on, they will sell their cars as fast as they roll off the lines, and that will put Europe’s other carmakers out of business.
Resources and links:
Top Chinese EV Automakers Plan European Plants
https://www.autoworldjournal.com/top-chinese-ev-automakers-plan-european-plants/
On tariffs and the EV transition
https://energyathaas.wordpress.com/2024/05/20/on-tariffs-and-the-ev-transition/
EV Magazine, EU Imposes Up to 38% Tariffs on EVs to Protect Industry
https://evmagazine.com/articles/eu-imposes-up-to-38-tariffs-on-evs-to-protect-industry
5 takeaways from Biden's tariff hikes on Chinese electric vehicles
https://www.npr.org/2024/05/14/1251096758/biden-china-tariffs-ev-electric-vehicles-5-things
EV Magazine, China & EU Explore Replacing EV Tariffs with Minimum Prices
https://evmagazine.com/news/china-eu-could-minimum-ev-prices-replace-tariffs
Reuters, EU, China will look into setting minimum prices on electric vehicles, EU says
New York Times, China’s BYD Outsells Tesla in Europe for First Time
https://www.nytimes.com/2025/05/22/business/china-byd-tesla-sales-ev-europe.html
Electrek, BYD is already taking Europe by storm, and its top-selling EV just landed
https://electrek.co/2025/05/22/byd-taking-europe-by-storm-top-selling-ev-just-landed/
SCMP, How BYD and Chinese peers are transforming Europe’s small EV market
Tesla Vs. BYD Is Barely A Contest On EV Sales. Elon Musk Bets All On Robotaxis.
https://www.investors.com/news/tesla-vs-byd-tesla-stock-ev-sales-robotaxis-elon-musk-trump/
BYD Sales by Model and Country Statistics (Feb 2025)
https://tridenstechnology.com/byd-sales-statistics/
Reuters, China's BYD outsells Tesla in Europe for first time, report says
CNBC, BYD beats Tesla in European EV sales despite EU tariffs in ‘watershed moment,’ report says
BYD outsells Tesla in Europe for the first time as registrations surge in April
China Passenger Car Exports
Western capitalist: Competition is good and defines capitalism. All economies need to adopt the capitalist system.
After China based corporations gets into the western market, the Western capitalist says: Competition is bad. We need to stifle our competitors (from China) by raising tariffs up the ying yang to ensure that our products have a fighting chance in our own market.