China asks automakers to suspend investments in EU countries supporting EV tariffs, Reuters reports | Real Time Headlines

China has asked its automakers to stop large-scale investments in European countries that support additional tariffs on Chinese-made electric vehicles, two people familiar with the matter said, a move that could further divide Europe.

New EU tariffs of up to 45.3% took effect on Wednesday, after a year-long investigation divided the bloc and triggered retaliation from Beijing.

Ten EU member states, including France, Poland and Italy, supported the tariffs in this month’s vote, with five including Germany opposing and 12 abstaining.

Chinese automakers include BYD, State Administration for Industry and Commerceand auspicious People familiar with the matter said that the Ministry of Commerce was told at a meeting held on October 10 that heavy asset investment projects such as building factories in countries that support the proposal should be suspended.

They declined to be named because the meeting was not public.

Several foreign automakers also attended the meeting, where attendees were told to be cautious about investments in countries that abstained from voting and to be “encouraged” to invest in those that voted against the tariffs, people familiar with the matter said.

Geely declined to comment. SAIC, BYD and the Ministry of Commerce did not immediately respond to requests for comment.

The move by Chinese authorities to suspend investment in some parts of Europe shows that Beijing is seeking leverage in negotiating alternatives to tariffs with the European Union and is eager to avoid a sharp decline in electric vehicle exports to major markets.

Europe will account for more than 40% of China’s electric vehicle shipments in 2023, according to Reuters calculations using data from the China Passenger Car Association.

With the United States and Canada imposing 100% tariffs on Chinese-made electric vehicles, falling EV exports to Europe could exacerbate the overcapacity problem faced by Chinese automakers in the domestic market.

During Spanish Prime Minister Pedro Sanchez’s visit to China last month, a Chinese company agreed to build a $1 billion factory in Spain to produce machinery for hydrogen production. Spain was one of 12 EU countries to abstain.

EU countries such as Italy and France have been seeking investment from Chinese carmakers but have warned that the flood of cheap Chinese electric cars poses risks to European manufacturers.

State-owned SAIC Motor, China’s second-largest car exporter, is looking for sites in Europe to build electric vehicle factories and plans to open a second European parts center in France this year to meet growing demand for its MG brand vehicles.

An aide to French junior trade minister Sophie Primas said they would not comment before she visits China next week.

The Italian government is in talks with Chery, China’s largest exporter, as well as other Chinese automakers, including Dongfeng Motorregarding potential investments.

Italy’s Industry Ministry declined to comment. Dongfeng did not immediately respond, while Chery declined to comment.

BYD is building a factory in Hungary, which voted against the tariffs. The Chinese electric car giant has also been considering moving its European headquarters from the Netherlands to Hungary due to cost considerations, two people familiar with the matter said.

Even before Beijing issued its guidance, Chinese companies were wary of setting up independent production sites in Europe because it would require significant investment and a deep understanding of local laws and culture.

Automakers were also told at the Oct. 10 meeting that they should avoid individual investment discussions with European governments and instead engage in collective bargaining together, people familiar with the matter said.

Previously, the Ministry of Commerce issued a similar warning in July, advising Chinese automakers not to invest in countries such as India and Türkiye, and to invest cautiously in Europe.