The decision is final: as of late October, the EU has imposed tariffs on Chinese electric vehicles. The reasoning? Excessive subsidies and unfair competition from China. Brussels has taken decisive action, despite strong warnings from the German automotive industry. Will the sector now face significant price increases and potential retaliatory measures from China? Could the demand for EVs be further suppressed due to these tariffs? And what impact might these measures have on Germany’s capacity for innovation? In this expert interview, we explore the scenarios currently under discussion in the German automotive and supplier industries.
Brussels' decision to impose tariffs on Chinese electric vehicles sparked significant controversy during the lead-up to its implementation. The measure was met with opposition from the automotive industry—including associations such as the VDA and ZdK—which warned of price increases, harsh retaliatory measures from Beijing, and the risk of a global trade conflict. Even Chancellor Scholz voted against the tariffs. Mr. Zeller, how do you assess these newly implemented measures?
I am fundamentally not a supporter of protectionism, and these tariffs can certainly be interpreted as such. In this respect, I can understand the position of German policymakers and industry associations. These tariffs provide, at most, a temporary reprieve for the European automotive industry, buying it some time. However, in the long term, it will not be able to avoid global competition. Looking at Tesla as an example: as a first mover, Tesla has been reshaping the market for fully electric vehicles for more than a decade—including in Europe. From this perspective, the Chinese manufacturers are merely fast followers. However, the approach taken with Tesla was entirely different: the company was lured to Grünheide with substantial subsidies and heavily supported, rather than being excluded from the European market. It’s also important to note that the EU’s tariffs are tiered by manufacturer. This nuance is often overlooked in public discussions.
In the tiered structure you mention, Tesla was recently subject to a 7.8% tariff instead of the previous 10%. Tesla had earlier responded to the EU tariffs by raising its prices. For the three largest Chinese manufacturers—SAIC, BYD, and Geely—the tariffs are significantly higher.
Yes, SAIC faces the maximum rate of 35.3%, Geely 18.8%, BYD 17%, and the joint venture partners of BMW and VW 20.7%.
Sources, including Politico, report that the tariffs are determined based on the manufacturers' willingness to cooperate—specifically, whether they are prepared to provide information about the level of subsidies they receive from the Chinese state. Do you find these assessments transparent and fair?
I find it fundamentally very challenging to make a 'fair' assessment in this context, especially since state subsidies from China do not necessarily go directly to the Chinese OEMs but are often allocated to earlier stages of the value chain. We must also not forget that the Chinese supplier industry—including European and American suppliers operating there—has become highly developed. This is particularly true for the supply chain in the electric vehicle sector. In this area, China has built a strong position due to its high degree of vertical integration and extensive battery production capabilities. If subsidies are primarily allocated to the earlier stages of the value chain, it becomes even more difficult to ensure transparency and traceability. For this reason, I also view the EU's seemingly differentiated approach critically.
In April 2024, Chancellor Scholz visited China and unsuccessfully advocated for a level playing field. Chinese subsidies and overcapacity caused frustration among German companies operating in China, which complained of unfair competition. Do the EV tariffs now inevitably bring some level of fairness? What is your assessment?
I do not believe that this approach is effective overall—especially given the likelihood of retaliatory measures from China.
Bloomberg recently reported, 'China Asks Carmakers to Halt Europe Expansion Over Tariff Spat.' It claimed there would be no further searches for plant locations or contract signings. Considering BYD, the company planned to open its first European plant in Hungary and possibly a second in Italy. During our preliminary conversation, you mentioned finding Beijing's response contradictory. Could you elaborate?
From my perspective, this is primarily a tactical move at the moment. I am convinced that we will see further direct investments by Chinese OEMs and suppliers in Europe over the next five years—unless Europe actively blocks this or Beijing explicitly prohibits it. However, I don’t see either of these scenarios materializing.
Let’s assume the mentioned scenario occurs: Chinese EV manufacturers actually put their expansion plans in the EU on hold. What impact would this have on the German automotive and supplier industries?
If this scenario were to materialize, the German and European automotive industries would still need to face competition from Chinese and, in the future, other Asian players in global markets. When I say 'in the future,' I am not referring to the established players from Japan and Korea, but rather to emerging providers from developing countries like India or Malaysia.
Despite all the criticism of the tariffs, they do provide the European automotive industry with a bit of breathing room—you mentioned earlier 'at most a brief reprieve,' buying the industry some time. How should this time ideally be used?
The European, and especially the German, automotive industry should urgently bring products to market that appeal to a broad customer base and offer truly superior or at least reasonably compelling price-performance ratios. For Germany, this means returning to innovation leadership, creating products that evoke emotional appeal and trigger a genuine 'must-have effect,' and achieving a competitive price-performance balance. Whether this can realistically be accomplished in Germany or at German production sites is, of course, a completely different discussion. Such products are still lacking in Germany, and the shortfall cannot be resolved quickly. Development cycles are simply too long. Only vehicles that are already market-ready can fill this gap—and this is precisely where the Chinese manufacturers excel.
In 2019, today’s Economics Minister Habeck told then-Volkswagen CEO Herbert Diess: 'If you don’t have an electric vehicle under €20,000 on the market by 2025, I fear you will fail.' Are there European manufacturers that have performed better in the meantime?
Looking at VW: Its classic USP, or at least its value proposition, was a car for the people—offering good performance and affordable products for a wide customer base. That is no longer the case today. European, and especially German, manufacturers need to return to that space. Affordable electromobility remains a weak point in Germany. One manufacturer that, in my view, has made a really strong move here is Renault with the new all-electric R5. It’s a car that appeals emotionally and falls into a price range that is at least somewhat accessible for a broader customer base. It’s a really smart move by Renault. And the car is very well made—I just sat in one yesterday. By the way, it’s built in Douai in northern France.
France’s EV market continues to grow, albeit at a slightly slower pace. In Germany, however, demand for EVs is declining. In early October, the VDA projected annual sales of 372,000 battery-electric vehicles, 29% less than the previous year. Will the EU tariffs exacerbate this trend?
Fundamentally, one would have to answer this question with 'yes,' although it remains unclear in which markets Chinese manufacturers will pass on the imposed tariffs and to what extent they will impact end customers. If a market has fewer affordable electric vehicles available, it’s clear that fewer people will make such a purchase—unless price is irrelevant. But if we assume a 10% price increase for end customers as a result, this will certainly not boost demand, especially in economically challenging times. In this respect, we are undoubtedly doing a disservice to the goal of increasing electrification in motorized individual transport.
You regularly engage with the German automotive and supplier industries. What is your impression of the current sentiment in this context, and what advice would you give?
In my perception, the current sentiment within the German automotive and supplier industries is quite tense. We are seeing supplier insolvencies almost weekly. Plans for job cuts are being made public almost daily by all major players, including OEMs and large first-tier suppliers. Additionally, there is significant relocation of production, as well as indirect functions like procurement, to other regions—particularly Asia. This, in my view, indicates the direction the industry is heading. I advise initiating transformation processes early, restructuring innovation portfolios in a timely manner, and addressing the restructuring of site and production networks at an early stage—combined with restructuring overhead. Even though it’s fair to say that the mood is poor, this does not mean that the prospects are entirely negative or have to remain so.
The EV tariffs are set to last five years, but negotiations between Germany and China are ongoing. You are very familiar with the automotive industries in both countries. What do you anticipate?
As of today, it is speculative whether these five years will actually be the duration. I don’t consider this decision to be final. I think there is still much that will evolve. What seems clear to me is that, given the sheer number of Chinese manufacturers and the market entry of highly innovative new players from the digital industries—such as Baidu or Xiaomi—the innovative strength of Chinese players will remain high. However, I do expect a consolidation within the Chinese OEM landscape. It is unlikely that it will remain at over 150 companie.
Last but not least: If the U.S. were to follow suit and impose massive tariffs on Chinese and EU imports, how do you think German-Chinese relations would evolve? Would others stand to benefit?
If events unfold as the Trump administration at least communicated, Germany will eventually need to take a clear stance in an industrial policy context—and I don’t mean just for the automotive industry. These issues will become increasingly polarized. That’s exactly what Trump intends: he wants a commitment from Central Europe—and Germany, as a key player within the EU—to choose between the U.S. or China. For now, however, we need to wait and see what actually happens in the U.S. starting next year and the extent to which tariffs on imports will be imposed. I don’t believe these tariffs will push the German and European automotive industries toward China. However, they will undoubtedly lead to greater market protectionism and to manufacturers building their own facilities in the U.S., much like VW in Chattanooga, BMW in Spartanburg, and Mercedes in Tuscaloosa.
Thank you for the conversation, Mr. Zeller.
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