• Germany’s car industry under threat from cheaper Chinese EVs.
• New tariffs could worsen plant closures across Europe.

Germany has long been known as Europe’s car capital, with slogans such as Vorsprung durch Technik (progress through technology) reflectiong the country’s industrial strategy. However, Volkswagen is now faces significant challenges as trade unions battle potential layoffs and factory closures. This isn’t simply a Volkswagen issue; it raises larger concerns about the future of Europe’s car industry.

A big part of the concern is the emergence of China’s electric vehicles, which are cheaper and are quickly gaining traction in Europe. In addition, the traditional combustion engine is slowly becoming a thing of the past, with EU legislation in place designed to phase out oil-burning engines within the next few decades.

In response, the EU, US, and Canada intend to impose tariffs on Chinese-made electric vehicles. However, the plan is not supported by all. Some European carmakers are afraid that new tariffs may hasten the closure of car plants, particularly in Germany.

The Paris Motor Show made it clear that the European car sector is under pressure. Chinese carmakers were represented in full force, eager to break into the European market – the biggest market left to them after the US slapped heavy tariffs on Chinese vehicles.

Reactions to the tariffs have been the epitome of different. As The Guardian reported, Carlos Tavares, the CEO of Stellantis (which owns brands like Citroën, Fiat, and Jeep), warned that the EU’s tariffs could do more harm than good. He pointed out that Chinese manufacturers, like BYD, are already planning to sidestep the tariffs by setting up shop in Europe by building manufacturing facilities on the continent.

Tavares predicted that Chinese carmakers would not be building in Germany, France, or Italy (the traditional bases for Europe’s car industry). Instead, they will favour countries like Hungary, where labour costs are lower. And this shift, he claims, will simply hasten plant closures across the rest of Europe, defeating the purpose of the tariffs.

His concerns also expose deeper disagreements in the EU. France, led by President Emmanuel Macron, is in favour of the tariffs, while Germany was one of the few countries that voted against them. In the past, Germany would have had enough influence to be able to unite other EU nations, but that’s not happening under Chancellor Olaf Scholz.

With no clear leadership, the European car industry has to fight for its future. Faced with economic challenges and weak demand for electric vehicles, industry leaders such as Stellantis are advocating for more time to adjust to the new world of electric vehicles rather than relying on tariffs to protect them.

BMW’s CEO, Oliver Zipse, has called for pushing back the EU’s 2035 deadline for ending the production of new combustion engine cars. The European Commission has said it’s open to discussions, but for now, the deadline remains, giving the industry 11 years to make the transition.

Meanwhile, China’s BYD is not wasting time. The company plans to build all of the cars it sells in Europe in the European economic zone, and to manufacture battery packs—the most expensive component of an EV—in Hungary and Turkey. Other Chinese carmakers, such as Geely (which owns Volvo and Lotus), are aiming to establish a greater presence in Europe, while emerging players like Dongfeng and Seres are anxious to broaden their footprint.

Interestingly, some European carmakers now collaborate with the very Chinese competitors that are threatening their future.

Tariff debate: Free market vs. protectionism

While the EU, US, and Canada push for tariffs to protect their industries, it raises a big question: Are we truly committed to free-market competition, or are we drifting toward protectionism?

Governments typically support open competition and minimal intervention, but tariffs seem to contradict that liberal approach. Some argue that by shielding European carmakers from their Chinese rivals, the EU is limiting competition, which could stifle innovation and hurt consumers in the long term. It’s a difficult balance to find, and the debate emphasises the conflict between protectionist policies and the free-market values.

As Europe’s car industry tries to navigate the rise of Chinese electric vehicles and the impact of new tariffs, the question of protectionism versus free competition will continue to shape its future. Whether the industry can hold on to its global leadership position or whether China will its decline is still to be seen. But one thing’s for sure—the road ahead is full of both challenges and opportunities.

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