The European Commission is planning to introduce new legislation later this month, aimed at increasing local production within its automotive industry and protecting it from intense Chinese competition.
The Financial Times reported on Monday that the draft legislation will require EVs, hybrids, and fuel cell vehicles to receive state support to source at least 70% of their components — excluding batteries — from the EU or be fully assembled within the region.
The regulation also stated that several core components of a vehicle’s battery must originate from the EU, a requirement which has been described by “some automotive officials” as “challenging given the EV industry’s heavy reliance on China for battery technology as well as materials”, according to the publication.
However, the report flagged the 70% threshold as provisional, noting that its placement in square brackets suggested that it could still change.
Additionally, the draft legislation will demand that a minimum of 25% of aluminum products and of 30% of plastics utilized in windows and doors in the construction sector must be produced in the EU, to qualify for government subsidies or public contracts.
According to the Financial Times, the measures are “part of a wider effort by the EU to try to save its €2.6 trillion manufacturing base” — equivalent to $3.1 trillion.
European automakers have been closing plants and laying off thousands of workers — with Volkswagen being one of the main examples —, squeezed by Chinese competition, high energy prices, and costly climate compliance, as highlighted in the article.
Set for publication on February 25, the ‘Industrial Accelerator Act’ aims to protect European industries, in part by factoring carbon emissions into public procurement tenders.
Reactions to the Legislation
Companies in clean technology sectors, including renewable energy or batteries, and car parts suppliers, have shown their support for the new protectionist measures.
However, automakers have been divided.
While BMW has warned that the rules would incur unnecessary costs and bureaucracy, Volkswagen and Stellantis Group requested a “made in Europe” public scheme last month in order to incentivize manufacturers to use local content in their vehicles.
Other carmakers have urged that the local content rule should be expanded beyond the EU to include manufacturing hubs like Turkey and the UK, as well as key trading partners such as Japan.
The world’s best-selling EV brand last year, BYD will soon begin manufacturing its EVs for Europe in Hungary, reducing its exposure to the new legislation compared to other Chinese automakers.
The Shenzhen-based giant also announced in July 2024 a $1 billion deal to build a new factory in Turkey, capable of producing 150,000 vehicles a year.
Meanwhile, Tesla faces significant exposure to the act, with its Model 3 produced at its GigaShanghai in China.
EU Tariffs on Chinese EVs
In late 2024, the EU imposed tariffs on imported Chinese fully electric vehicles, with rates varying by automaker.
After a year of trade discussions, which resumed amid rising global tensions following the announcement of US tariffs last April, Brussels appeared willing to consider China’s proposal to set a minimum vehicle price.
In the last weeks of 2024, the world’s largest automotive market reportedly offered to ensure its EVs imported to the EU would not be sold for less than approximately €30,000 ($35,500), to avoid its duties.
However, the European Commission rejected the proposal, citing that it did not sufficiently offset the distorting effects of the subsidies.
The Chinese government and Chinese EV makers welcomed the move, but the EU quickly clarified that it would not translate into tariff relief.
Last month, the European Commission reportedly considered extending tariffs on imported Chinese EVs to include hybrid vehicles., following an EU guidance on “price undertaking” offers to replace the high tariffs.
Last Wednesday, Brussels agreed to lift the import duties applied to Volkswagen China (Anhui)’s fully electric Cupra Tavascan SUV.
China’s Ministry of Commerce confirmed a day later that several companies are expected to sign pricing agreements with the EU.
