“Export Offensive Pierces Trade Barriers” Chinese EVs Push Deeper into Europe as EU Retaliates With Sweeping Trade Pressure

Chinese EVs sustain European growth despite tariff barriers
Price competitiveness remains intact as regulatory workarounds emerge
EU broadens pressure across trade relations with China

Chinese electric vehicles have captured a record share of the European market. Sales continue to rise despite the European Union’s efforts to protect domestic industries by tightening trade barriers against Chinese EVs. Leveraging vertically integrated operations and government support, Chinese automakers are absorbing regulatory costs while developing ways to circumvent local production requirements and carbon rules, intensifying their market offensive. The EU is responding by sharply expanding the scope of its trade restrictions against China.

Chinese EVs Race Ahead in Europe

According to data released on the 12th local time by market research firm Schmidt Automotive Research, Chinese brands sold 171,800 battery electric vehicles in Western Europe between January and May this year. Their market share reached a record 14.2%, up 4.8 percentage points from 9.4% during the same period last year. The figures cover 18 major Western European markets, including the United Kingdom, Norway and Switzerland, and classify vehicles according to whether their manufacturers or brands are Chinese rather than by production location.

One in every four Chinese-brand battery electric vehicles sold during the period went to the United Kingdom, reflecting the country’s decision to keep its market open without imposing additional tariffs on Chinese EVs. Italy accounted for nearly 20% of total Chinese-brand battery EV sales. Matthias Schmidt, founder of Schmidt Automotive Research, said, “Italy’s elevated share was an exceptional phenomenon driven by Leapmotor’s concentrated shipment of several thousand T03 compact battery EVs in anticipation of demand generated by government subsidies.” The Italian government previously offered EV subsidies of up to $12,700 to consumers who met the country’s ISEE economic eligibility criteria, lived in designated metropolitan areas and scrapped an existing internal-combustion vehicle.

EU on Alert for Years

Market attention has focused on the ability of Chinese brands to perform strongly despite the EU’s steep tariffs. The EU conducted an anti-subsidy investigation into Chinese EVs for roughly a year beginning in 2023 and imposed provisional countervailing duties in July 2024 after concluding that Chinese government subsidies had distorted competition within the bloc. The measure marked the first large-scale trade sanction against Chinese EVs. In October of that year, the EU secured approval from member states and finalized additional company-specific tariffs of up to 35.3%. The two sides are currently considering a partial reduction in tariffs if Chinese manufacturers guarantee minimum selling prices above an agreed threshold, although substantive agreement remains elusive.

Institutional barriers are also rising. The Industrial Accelerator Act (IAA), a draft of which was released in early March, represents a prominent example. The IAA is designed to concentrate public benefits—including government procurement, subsidies and support for corporate vehicles—on products made in Europe. Under the bill, EVs participating in public procurement or receiving government support must undergo final assembly within the EU, while at least 70% of vehicle components excluding batteries must originate in the bloc. Vehicles assembled in European factories largely from imported Chinese components would therefore struggle to qualify as European-made.

Separate localization requirements apply to batteries. Three years after implementation, the minimum EU-origin content requirement for electrified powertrain components, including electric motors and inverters, and major automotive electronic systems will rise to at least 50% by value. The IAA also stipulates that the EU may impose separate investment conditions on companies from countries accounting for at least 40% of global production capacity in strategic industries—including EVs, batteries, solar power and critical minerals—when they invest more than $115.5 million in the bloc. The provision is widely interpreted as targeting China’s rapid expansion in the global EV and battery markets.

High Probability of Regulatory Offsets

These measures are nevertheless unlikely to halt the Chinese EV industry’s offensive. Chinese companies are accelerating efforts to secure local production bases to offset the EU’s trade restrictions. Japan’s Nissan, for example, has signed a memorandum of understanding (MOU) with China’s Chery Automobile for contract manufacturing at its Sunderland plant in the United Kingdom. Under the arrangement, Chery would pay fees to outsource a substantial volume of production to Nissan’s Sunderland facility. The companies are also reportedly considering producing Chery’s Omoda 5 compact sport utility vehicle (SUV) at Nissan’s idled Barcelona plant in Spain. European automotive group Stellantis plans to manufacture Leapmotor’s B10 electric SUV at its Zaragoza plant in Spain. China’s Dongfeng Motor and Hongqi, the luxury marque owned by China FAW Group, are also considering outsourcing production to Stellantis. Germany’s Volkswagen is reportedly discussing a factory acquisition and contract manufacturing arrangement with China’s Xpeng.

Workarounds for carbon-emissions regulations are also taking shape. Citing a recent report by global research firm Gavekal Technologies, Hong Kong’s South China Morning Post (SCMP) reported on the 8th that Chinese battery companies are expanding the construction of zero-carbon industrial parks powered by renewable energy. The EU’s tightening battery rules have accelerated these efforts. Beginning next February, the EU will require a “digital battery passport” that verifies and records lifecycle carbon-emissions data for EV and industrial batteries sold within the bloc. From 2028, it will introduce a “carbon ceiling” that directly limits emissions generated during battery production. One market specialist said, “The EU is a crucial export market accounting for roughly 40% of Chinese battery shipments. Chinese battery manufacturers must focus on regulatory compliance and adapt to changing market conditions to preserve profitability.”

Table 1. Chinese EV Industry’s Strategies for Penetrating the EU Market

Affordability Remains a Weapon

The price competitiveness of Chinese EVs also remains firmly intact. The advantage is particularly pronounced when compared with equivalent or adjacent models from major European mass-market brands. In Germany, for example, BYD’s Dolphin Surf starts at $26,542. That is $5,784 below the $32,326 starting price of Renault’s 5 E-Tech. Compared with Volkswagen’s ID.3, priced at $39,247, the gap widens to $12,706.

Chinese EV manufacturers can maintain low selling prices because of vertically integrated operations spanning batteries, core components and finished vehicles, coupled with low-cost supply chains. According to the International Energy Agency (IEA), battery EV production costs in China are more than 30% lower than in advanced economies, with battery-cost differentials accounting for approximately one-third of the gap. Chinese battery-cell prices are also estimated to be more than 30% lower on average than those in Europe. Long-term industrial support from the Chinese government provides the central force sustaining this cost structure. Policy assistance for critical-mineral supply chains, research and development (R&D), and production facilities has combined with a vast domestic market to accelerate the expansion of Chinese manufacturers.

EU Draws Its Sword Against China

Amid China’s offensive, the EU is intensifying pressure across its broader trade relationship with Beijing. One prominent example is its decision to impose a temporary tariff of $3.46 per product category on low-value direct-purchase goods priced below $173, curbing the expansion of Chinese e-commerce platforms such as Temu, Shein and AliExpress. More recently, a series of Chinese companies accused of supporting Russia’s defense industry have been placed under sanctions. Beginning in December 2027, the EU’s forced-labor product ban will take full effect, requiring proof of raw-material and component supply chains for major Chinese exports including solar panels, batteries and textiles.

These sanctions pose a severe threat to China, which has redirected export volumes toward Europe to avoid steep U.S. tariffs. Prolonged weakness in domestic demand and the property downturn have markedly increased China’s reliance on exports. Further restrictions on access to the European market could accelerate the decline of the country’s manufacturing sector. The EU’s recent measures consequently amount to a hard-line response aimed squarely at China’s excess production capacity and low-price export model.