The European Union and Australia concluded on Tuesday negotiations for a free trade agreement (FTA), with vehicles emerging as the sector with the highest projected export growth under the deal.
European Commission President Ursula von der Leyen and Australian Prime Minister Anthony Albanese agreed on the final text during a leaders’ meeting in Canberra.
The agreement eliminates over 99% of tariffs on EU goods exported to Australia, cutting roughly €1 billion ($1.2 billion) per year in duties.
Overall EU exports are expected to grow by up to 33% over the next decade, reaching up to €17.7 billion ($20.5 billion) annually.
“Our trade already sustains 460,000 European jobs – just imagine the potential, with EU goods exports expected to grow by 33% over the next decade,” EU Trade Commissioner Maroš Šefčovič stated.
According to Ursula von der Leyen, the two blocs “are sending a strong signal to the rest of the world that friendship and cooperation is what matters most in times of turbulence.”
Auto Industry
EU investment into Australia has the potential to grow by over 87%.
Among the key sectors highlighted in the agreement, motor vehicles lead with a projected export increase of up to 52% — ahead of dairy at 48% and chemicals at 20%.
For the EV supply chain specifically, the deal creates a dual advantage.
On the export side, European automakers will gain privileged access to the Australian market as tariffs are removed.
On the other hand, the agreement facilitates EU access to Australian critical raw materials — including lithium, aluminium and manganese — with dedicated provisions aimed at making supply more predictable for European businesses.
Australia is a major producer of key materials used in batteries and electric vehicle (EV) manufacturing — resources that the EU relies heavily on imports to obtain.
EV Sales in Australia
EV sales in Australia rose 38% in 2025, with BEV sales exceeding 100,000 for the first time and reaching 13.1% market share, according to the Australian tracking platform Electric Vehicle Council.
The Tesla Model Y led the market with 22,239 units, followed by the BYD Sealion 7 with 13,410 units, according to Zecar — a data and shop stop for EVs in the country.
European brands hold a small share of the market, however.
According to CleanTechnica, the only European brands in the top 20 best-selling BEVs in January 2026 were Volkswagen and Mercedes-Benz, both near the bottom of the ranking.
Most of the European brands present in Australia are part of the Volkswagen Group — including its main brand, the cheaper Cupra and Škoda, and the higher-level Audi and Porsche.
Mercedes-Benz and BMW complete the trio.
While Polestar and Volvo are headquartered in Sweden, the two brands are owned by China’s Geely Holding Group, with most of its production based there.
Stellantis also entered the EV market through Chinese new energy vehicle maker Leapmotor, which recently debuted its C10 model there.
BMW, Volvo and Volkswagen posted modest EV numbers despite strong brand recognition, with high prices limiting their appeal, according to Zecar.
Background
Negotiations for the free trade agreement started in July 2018, and the fifteenth and final formal negotiating round was held in April 2023.
Talks then stalled as Australia pushed for larger export quotas for lamb and beef to Europe, while the EU sought greater access to Australia’s critical minerals and lower tariffs.
However, both sides later intensified negotiations in response to higher US tariffs, introduced by the Trump Administration last April.
On the EU side, the negotiated texts will go through internal procedures before the Commission puts forward its proposal to the Council for signature.
The agreement will also require European Parliament consent and Australian ratification before it can enter into force.
The agreement follows the conclusion of EU trade deals with Indonesia in September 2025 and India in January 2026, further diversifying the bloc’s trade network in the Indo-Pacific region.
Additionally, the European Commission took the final steps on Monday to provisionally apply the Mercosur trade deal from May 1, covering Argentina, Brazil, Paraguay and Uruguay.
Mercosur
The European Commission confirmed on Monday that the EU-Mercosur free trade agreement will be provisionally applied from May 1.
The announcement marks the final procedural step for the deal to enter into force between the 27-nation European Union and the four Mercosur countries — Argentina, Brazil, Paraguay, and Uruguay.
The agreement took over 25 years to negotiate.
It will eliminate tariffs on more than 90% of trade between the two blocs, creating one of the world’s largest free trade zones — covering more than 700 million consumers and around 30% of global GDP.
“The priority now is turning this EU-Mercosur agreement into concrete outcomes, giving EU exporters the platform they need to seize new opportunities for trade, growth and jobs,” EU Trade Commissioner Maroš Šefčovič said.
Changes in the Auto Industry
Mercosur countries currently impose tariffs of up to 35% on imported vehicles.
Under the deal, tariffs on battery electric vehicles drop immediately to 25% and will be fully eliminated over 18 years.
Hybrids follow the same timeline. Hydrogen-fueled vehicles have a 25-year phase-out.
For ICE passenger cars, the transition spans 15 years, with a quota of 50,000 units at a reduced rate of 17.5% during the first seven.
Import duties on European automotive parts — currently between 14% and 18% — will be abolished entirely.
The European Commission estimates the deal could triple EU automotive exports to the region by 2040.
The European Automobile Manufacturers’ Association (ACEA) has called the agreement essential for the industry’s competitiveness.
The Mercosur region is home to around 270 million consumers, and EV market share stood at just 5% in the first half of 2025 — signaling significant room for expansion.
The timing adds a strategic dimension.
With the United States moving toward increasingly protectionist trade policies, European manufacturers are turning to South America as a priority growth market.
The deal still faces legal and political hurdles, however.
The European Parliament referred it to the EU Court of Justice for a legal opinion in January.
The Commission moved forward with provisional application regardless, backed by a qualified majority of member states.
EVs in South America
Brazil is the largest EV market in Latin America.
Last year, BYD dominated 59% of the market, according to CleanTechnica.
The Shenzhen-headquartered carmaker began assembling passenger vehicles in Brazil in July 2025.
BYD Brazil recently increased its sales target, expecting to deliver 250,000 vehicles in the South American country this year, including both fully electric vehicles and plug-in hybrid models.
Among European brands, Volvo accounted for roughly 5.5% of the EV market, followed by BMW at around 2%. Mercedes-Benz, Audi and Porsche each held marginal shares.
Volkswagen — Brazil’s second-largest car brand— has yet to bring a significant EV lineup to the market, focusing on flex-fuel hybrids.
In Argentina, 1,279 fully electric vehicles were registered in 2025 — less than 0.3% of total sales despite a 129.6% year-on-year growth, according to ACARA.
Four European models made the top 10: the Volvo EX30 in fourth, the Renault Megane E-Tech in fifth and Kangoo E-Tech in sixth, and the BMW iX2 in tenth.
Uruguay reached 27.97% BEV market penetration in the third quarter of 2025, the latest data available.
European brands, however, are virtually absent — around 90% of EVs sold came from Chinese manufacturers, according to Reuters.
Adoption has been driven by zero import duties, excise tax exemptions and gasoline above $7.00 per gallon.
Paraguay has the smallest EV market in the bloc, with no significant European brand presence.
Outlook
In both regions — Indo-Pacific and Mercosur — Chinese brands hold substantial price advantages and, despite the earlier introduction of European brands, are more competitive.
The two trade agreements come at a pivotal moment for European automakers.
German automotive exports to China have more than halved since 2022, dropping from nearly €30 billion to under €14 billion in 2025, according to the German Economic Institute (IW).
In the United States, all imported vehicles face a 25% base tariff introduced in April 2025, on top of the 100% duty on Chinese EVs set by the Biden administration.
The European Union is expected to suspend ratification of its trade agreement with the United States in response to tariffs imposed under the Trump administration and escalating geopolitical tensions, particularly related to Greenland.
With access to both China and the US increasingly constrained, Brussels is turning to the Indo-Pacific and South America as priority growth markets.
Separately, the EU and China continue to negotiate over the countervailing duties imposed on Chinese-made battery electric vehicles in October 2024.
The tariffs, which add to the bloc’s standard 10% import duty, range from 7.8% on Tesla‘s Shanghai-built vehicles to 35.3% on models from non-cooperating manufacturers.
EU Trade Commissioner Maroš Šefčovič and China’s Commerce Minister Wang Wentao have agreed to explore minimum price commitments as an alternative to the duties — though Brussels had first rejected a Chinese proposal to set a floor of €30,000 per vehicle.
The bloc issued a guidance document in January for undertaking price offers.
The Cupra Tavascan SUV, produced in China by Volkswagen (Anhui), became last month the first model to have its undertaking price offer approved — granted that the model adheres to a minimum price requirement and an import quota.
Several Chinese automakers are still assessing whether to submit individual price undertaking offers, according to the China Chamber of Commerce to the EU.
