Chinese carmakers are losing their appetite for Europe after the EU imposed tariffs on their EVs

A recent survey from the China Economic Service and the China Chamber of Commerce to the EU reports that 82% of Chinese vehicle and industry chain firms are less confident about investing in Europe in the near future, due to the tariffs. Eighty-three percent say that their European partners are now worried about cooperating with Chinese companies, while 73% reported drops in European sales.

The survey covered more than 30 companies and institutions working with new energy vehicles, a category that includes battery electric vehicles and plug-in hybrids.

Chinese automotive companies face a “challenging business environment,” the report said. The majority of companies polled agreed that “heightened trade tensions” were politicizing economic activities.

A building trade war

Last week, the European Commission said it will impose tariffs of up to 38% on Chinese-made electric vehicles, starting next month. The decision follows an anti-subsidy probe launched last October.

That decision could trigger a wider trade spat between China and Europe. The EU is probing several other industries including iron and steel, wind turbines, and medical devices.

Chinese automakers are urging Beijing to increase tariffs on internal combustion engine vehicle imports from Europe.

Beijing recently launched an anti-dumping probe into European pork, adding to a similar probe launched against European brandy earlier this year.

How will Chinese EV makers respond?

China’s EV sector has emerged as a major driver of the Chinese economy, as companies like BYD and batterymaker CATL become major players in their respective sectors. Chinese manufacturers have rejected accusations that their success is due to state support.

Chinese EV makers could get around the tariff by setting up manufacturing operations in Europe. BYD and fellow Chinese carmaker Chery have committed to new plants in Hungary and Spain.

The Chamber’s survey suggest that more Chinese carmakers could be thinking about basing more production in Europe. Even as many reported less confidence in investing in Europe, 64% of companies said they still planned to establish factories for Europe-based manufacturing within the next five years.