Europe’s Car Problem Is Not a Customs Problem By Qaiser Nawab

Brussels has made an unusual request. Ahead of trade discussions with Beijing next month, the European Commission has asked China to voluntarily limit its share of hybrid-car sales in the European Union to around 15 per cent, compared with approximately one-third of the hybrid segment today. The proposal is intended to address growing concerns about deindustrialisation and pressure on European manufacturers.The anxiety behind the request is real, and it deserves a serious response rather than a slogan. Europe’s automotive industry supports millions of jobs across manufacturing, logistics, engineering and services. It is now facing several pressures at once: the expensive transition to electric vehicles, high production costs, weak demand, factory underutilisation and stronger competition from Chinese manufacturers.The question is whether an export quota on hybrid vehicles can resolve these structural problems. The evidence so far suggests that restrictions may change the composition of competition without addressing its underlying causes.The EU’s 2024 decision to impose additional duties on battery-electric vehicles imported from China illustrates the difficulty. Those measures applied to battery-electric vehicles following an anti-subsidy investigation; they did not cover hybrid vehicles. As a result, Chinese manufacturers continued to compete in other segments where the applicable tariff treatment was different. The European Commission has stated that trade-defence measures are limited to the products covered by the relevant investigation.The lesson is not that European trade concerns should be ignored. It is that a policy aimed at one technology may redirect commercial activity rather than remove competitive pressure altogether.Where the Last Round of Restrictions LedThe growth of Chinese hybrid imports reflects both market strategy and consumer demand. Chinese manufacturers have expanded their European offerings beyond fully electric vehicles, including plug-in hybrids and other electrified models. Their competitive pricing, equipment levels and expanding dealer networks have helped them gain visibility in a market traditionally dominated by European, Japanese and South Korean brands.However, the figures require careful interpretation. Chinese brands remain a relatively small share of the overall European car market, even though their presence is considerably larger in some electric and hybrid categories. A claim that Chinese vehicles represent more than one-third of the EU’s entire car market would be misleading. The relevant comparison is the hybrid segment, not total vehicle sales.A quota could provide some short-term relief to European manufacturers, but it would not necessarily restore production at underused factories. If Chinese hybrid imports were restricted, manufacturers could respond by changing their product mix, increasing sales of other powertrains, assembling vehicles within the European customs area or concentrating on different markets. The precise outcome would depend on the design of the policy and the responses of companies.Consumers would also face consequences. A narrower range of affordable vehicles could increase prices or delay purchasing decisions. Some households may retain older cars for longer, particularly if new electric and hybrid vehicles become less accessible. That would complicate the EU’s efforts to reduce transport emissions and accelerate the renewal of its vehicle fleet.The wider problem is that European manufacturers need more than protection from imports. They require competitive energy prices, reliable supply chains, investment in batteries and software, skilled workers and products that meet changing consumer expectations.The experience of European companies collaborating with Chinese technology firms also shows how closely the two automotive ecosystems have become connected. European manufacturers are increasingly working with Chinese partners in areas such as electric platforms, batteries, software and emissions compliance. These partnerships may be commercially complex, but they demonstrate that competition and cooperation are not always separate processes.A customs measure cannot, by itself, close the gap between Europe’s industrial ambitions and the technological and commercial changes taking place in the global automobile market.The Investment Bargain Brussels Is SeekingRead carefully, the European Commission’s proposal is not simply a return to traditional protectionism. It is also an attempt to use market access as leverage.Chinese manufacturers want to expand in Europe, but tariffs, regulatory uncertainty and possible future local-content requirements make production inside the European market increasingly attractive. Chinese companies are therefore examining factories, partnerships and investment opportunities across the continent.This process is already visible in Spain. Chery has partnered with Ebro EV Motors to use part of the former Nissan facility in Barcelona. Stellantis and Leapmotor are also expanding their cooperation, including plans involving production at Stellantis facilities in Zaragoza and Madrid. Their agreement includes the possible production of Leapmotor vehicles in Spain and the use of European supply-chain capabilities.The proposed CATL–Stellantis battery plant in Zaragoza represents another form of cooperation. The companies announced plans for an investment of up to €4.1 billion in a large-scale lithium iron phosphate battery facility, with production planned for the end of 2026 and potential capacity of up to 50 gigawatt-hours.SAIC has also announced plans for a €200 million vehicle plant in Galicia, expected to begin operations in 2028 and projected to produce up to 120,000 vehicles annually in its initial plans. The project illustrates how Chinese manufacturers are considering European production not only as a way to reach customers but also as a means of adapting to changing trade requirements.These developments should not be romanticised. Investment announcements are not the same as completed factories, and projected employment figures depend on implementation, demand and future business conditions. European governments must examine the financial, environmental, labour and strategic implications of every project.Nevertheless, the economic opportunity is clear. A European factory that produces vehicles or batteries can support local employment, suppliers, technical training and regional economic activity. It may also help preserve industrial sites that would otherwise face closure or prolonged underuse.This is why the distinction between imports and investment matters. A vehicle shipped from China and a vehicle manufactured in Europe may serve the same consumer market, but their contribution to European industrial capacity is different.The EU’s challenge is to design policies that encourage meaningful local investment without creating arbitrary or discriminatory barriers. Market access could be linked to transparent commitments relating to employment, supplier development, research and environmental performance.Such a system would require monitoring and enforcement. Companies should not receive preferential treatment based solely on promises, while European governments should avoid imposing conditions that make investment commercially unviable.What a Workable Agreement RequiresNone of this means that Europe’s concerns are unfounded. Chinese industrial policy has supported the rapid development of electric vehicles, batteries and related supply chains. European companies have raised questions about subsidies, market access and the competitive conditions under which Chinese manufacturers operate.These issues deserve negotiations based on evidence and reciprocity. A credible agreement cannot require openness from one side while ignoring legitimate concerns on the other.However, managed trade should be predictable and rule-based rather than built around arbitrary numerical restrictions. The European side needs to provide regulatory clarity, consistent investment-screening procedures and a distinction between sensitive strategic acquisitions and greenfield manufacturing projects.New factories and research facilities should be assessed according to their actual risks and economic contributions. Rules that unnecessarily restrict foreign ownership, require inappropriate technology transfers or exclude companies from procurement without clear justification could discourage the very investment European policymakers seek.China, meanwhile, must recognise that long-term access to a market of hundreds of millions of consumers requires more than competitive exports. Local production, supplier development, employment creation, regulatory compliance and genuine cooperation with European institutions will be essential for sustainable expansion.Any quantitative commitments, if introduced, would be more useful if connected to investment milestones rather than imposed as a uniform ceiling. A company establishing production, employing local workers and developing European suppliers should be evaluated differently from a company relying exclusively on exports. Such a framework would need to remain open and non-discriminatory, regardless of the nationality of the investor.Europe’s automotive difficulties began before the latest increase in Chinese competition. They are connected to the slow development of affordable electric vehicles, high operating costs, changing technology and the restructuring of a supply chain built around conventional engines.A quota cannot resolve these issues. At most, it could provide temporary breathing space. The more important task is to use the current period of disruption to rebuild European industrial competitiveness.The EU and China do not need to agree on every aspect of industrial policy to pursue a practical arrangement. Both sides, however, have an interest in avoiding an escalating trade dispute that raises prices, discourages investment and slows the transition towards cleaner transport.Europe’s automotive future will not be secured by excluding every competitor. It will depend on whether the continent can combine fair competition with investment, innovation and industrial renewal.The real choice is not between European industry and Chinese participation. It is between a policy that merely restricts competition and one that uses trade, investment and clear rules to create lasting industrial value.Author: Qaiser Nawab is Chairman of the Belt and Road Initiative for Sustainable Development (BRISD), an international platform fostering cooperation and innovation across Asia, Africa, and Latin America. He can be reached at qaisernawab098@gmail.com