China to Europe: Marry Me - Or Else

A Fork In The Road For Europe

China hungers for a harmonious marriage to Europe.

Chinese automakers would secure direct access to a market of 449 million that offers vast potential for growth and profits. And salvation from brutal price wars in their home market.

But Europe – like a conflicted bride at the altar – is having second thoughts.

Last year, the EU announced special tariffs on EVs imported from China that ranged from 8% to 38%. Now, there is talk of restrictions on Chinese autonomous hardware and software, similar to those adopted last month by America.

Such rebuffs are bewildering to the Chinese – and more than a little annoying.

Look at all the valuable gifts we can bring to Europe, China says.

• You need affordable cars? We have that. The average price of a new car in Europe today is $49,000. The average cost of a Chinese car exported in 2024: $18,000.

• You need EVs to meet your ambitious climate mandates? We have enough capacity to supply all of Europe’s EV demand - right now.

• You need battery plants? You bet $15 billion on the Northvolt startup and that failed! Our battery leaders BYD, CATL and AESC are already on the ground in Europe and ready to ramp up production.

So, c’mon, says the People’s Republic, why the cold feet?

For European leaders and automakers: mixed feelings. China, in fact, does solve many immediate problems. What keeps them up at night are the long-term risks. What if the marriage goes sideways in five years?

Night Sweats

Privately, European automakers tell me they sense real danger – existential danger.

Volkswagen last year delivered 1 million fewer cars in Europe than it did in 2019, according to a report this week in the Financial Times. Sales in China are collapsing. At home, VW is closing plants in Germany for the first time in modern history.

EU political leaders are growing more wary, too. “We turned to Russia to solve our energy problems and we know how that turned out,” an EU Cabinet member recently confided to me. “We don’t want to make the same mistake with China.”

An impatient China, meanwhile, is starting to move from diplomacy to strong persuasion with a threat of coercion.

Last week China appointed Lu Shaye as its special rep for European affairs, one of China’s leading wolf warrior diplomats. “The Lu Shaye appointment signals a hardening of Beijing’s stance after clashes with the EU over trade and the Ukraine war,” says Peter Humphrey, a China veteran 50 years of PRC experience (including 30 months behind bars).

What might a tougher China stance look like?

China Leverage

• Ownership. China already enjoys enormous clout in Europe. The PRC owns or controls some of Europe’s most iconic brands.

Geely acquired Volvo in 2010 and Lotus in 2017. Geely also runs a JV with Mercedes to make Smart brand cars in China that are exported globally.

SAIC owns MG, a brand it acquired in 2005.

Geely and Beijing Auto Industry Corporation together hold 19% of shares at Mercedes-Benz.

With the largest stake in Mercedes, China exerts significant sway over Europe’s most prestigious automaker. In recent months, Mercedes CEO, Ola Kaellenius, has lobbied the EU leadership hard to drop tariffs on Chinese imports.

“We need more free trade, not additional barriers.” he told German reporters in Stuttgart.

Mr Kaellenius is understandably worried about retaliatory tariff action. Mercedes sold 683,000 vehicles in China last year, almost twice as many as in the United States.

• Exports. Made-in-China cars accounted for 20% of Europe’s EV market in 2024. That number is bound to climb higher. The MG brand alone delivered 240,000 cars across Europe and the UK last year.

Made-in-China Vehicle Exports to Europe*

2020: 263,000

2022: 530,000

2024: 737,000 (e)

*Includes Chinese & global carmakers; gasoline, PHEV & BEV powertrains.

• Lobby Power. Chinese leverage runs deep into the global manufacturing operations of European automakers.

In a remarkable twist, BMW, Mercedes, Tesla and VW’s Spanish subsidiary SEAT recently joined Chinese automakers in filing suits against the EU. The lawsuits are designed to strip Brussels of its rights to impose tariffs on imports from China.

European automakers are joining the fight because they build tens of thousands of EVs in China and export them back to Europe.

SEAT imports an all-electric CUPRA brand from China to help meet Europe’s stringent emissions regulations. “If CUPRA is at risk, then SEAT is at risk,” says SEAT CEO Wayne Griffiths.

Clearly, China has Europe coming and going.

Turnabout Is Fair Play

Europe is racing to preserve automotive independence where it still can. It’s 7-10 years behind when it comes to EVs and batteries. What to do?

Europe’s first best option to take a page from China’s own tariff and industrial playbook: Since the 1980s, China mandated 50-50 manufacturing joint ventures for every European automaker entering the PRC.

Europe should invoke the same terms for both car and battery manufacturing. “If you want to access to the lucrative European market, invest in manufacturing here and give 50% ownership to a European firm.” The 51-49 Stellantis-Leapmotor JV, formed last May, serves as a working template.

Europe should also make technology transfer agreements a requisite part of any Chinese investments. Chinese automakers might not like it. But they will get it.

There is a Chinese expression that describes joint ventures: Sleeping in the same bed, dreaming different dreams. China wants market access. And Europe thirsts for EV and battery technology. Each side will scratch and claw to achieve their separate objectives.

Europe, of course, does have another option: It could decide to turn around and walk back up the aisle, leaving China stranded at the altar.

But hell hath no fury like a suitor shunned.

Michael Dunne • February 11, 2025

www.dunneinsights.com

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A Special Note

I am very pleased to share here a link to an important new strategic paper prepared for automotive executives and political leaders in Europe.

Europe EV & Battery Industry: Revolutionary Change - Or Extinction

Here’s an opening excerpt:

It is the quarterfinals of the 2026 World Cup. Team Europe is down 3-0 at halftime, stunned by an opponent – China – that is bigger, faster, stronger and more skilled. Inside the locker room, silence. The coaching staff huddles in the corner, shaken by the one-sided play in the first half.

To forge a comeback, Team Europe's coach understands that he must make dramatic changes. He must take risks. He must do things differently. Otherwise, it's curtains, the end of the tourney run. And possibly the end of an era for Europe.

To continue reading: Link

Prepared for the European Initiative for Energy Security (EIES)

February, 2025.