The re-election of Donald Trump poses fresh challenges for Chinese automotive manufacturers, as proposed steep tariffs on Chinese electric vehicles (EVs) and parts – in addition to the 100% tariff on EVs and 25% tariff on lithium-ion EV batteries put in place by the Biden administration in 2024 – are set to further disrupt EV supply chains. This necessitates strategic pivots by Chinese automakers that will reshape the industry.
Immediate tariff impact limited: EV demand growth slows down in the US
The potential new tariff on Chinese EVs is more preventative of a potential threat to the US automotive manufacturing industry.
In 2024, Chinese firms captured only a 1% volume share of US light vehicle sales
Source: Euromonitor International
Geely’s EV brand Polestar has to identify new suppliers for parts and software.
Trump’s executive order in January 2025, repealing Biden-era consumer tax incentives on EVs and rules to tighten limits on greenhouse gas emissions, will negatively impact EV demand. Removal of subsidies finds unlikely support from Trump’s political donor and collaborator, Tesla owner Elon Musk, who has claimed this won’t impact Tesla negatively, owing to its profitability, only its competitors. However, in countries where subsidies have been removed (eg Germany, Sweden, New Zealand), overall demand has slumped.
Additionally, if US EV demand is further depressed because of the expected increases in borrowing costs, it will further drive down prices, potentially creating longer-term competition for Chinese marques.
In the EU tariffs are also up
With lower subsidies, overall EV demand in the EU has also been cooling, with a 9% decrease in EV registrations from 2023 to 2024
Source: Euromonitor International
The EU voted in October 2024 to impose additional tariffs on top of the pre-existing 10% for Chinese-produced EVs, using a sliding scale for specific manufacturers, with China's SAIC facing the highest rate of 35.3%. In Western Europe in 2024, Chinese firms only accounted for a 5% market volume share, largely contributed by Geely and SAIC (around 60% were EVs). With current impact only on a 5% share, tariff is actually strong headwinds for future export of Chinese EV manufacturers, promoting production in the EU.
Growth opportunities in Asia Pacific
While the US and Western Europe pose challenges, Asia Pacific presents growth opportunities for Chinese automakers.
In China’s own domestic market, the largest EV market in the world, Chinese EVs have gained significant appeal among customers traditionally loyal to Japanese and German brands, thanks to affordable pricing and driving assistance features. Aggressive expansion of Chinese car makers has contributed to a decline in Volkswagen’s light vehicle market share in China, from 16% in 2019 to 9% in 2024. China’s EV registrations in 2029 are predicted to reach 16 million, surpassing the combined total of the next 19 top markets. Also, EV registration in China is expected to grow from 39% in 2024 to exceed more than half by 2029, showing great potential to replace internal combustion engine (ICE) cars.
The EV markets in South Korea, Japan, Thailand, and India are also expected to be among the world’s top 20 markets for EVs by 2029, collectively representing opportunities of almost two million annual registrations. BYD opened a manufacturing plant in Thailand in July 2024 to serve EV demand across the ASEAN. It has also launched EVs in South Korea in January 2025, besides prior entry in Japan in 2022.
US tariff policies are expected to extend beyond vehicles to parts, with a “security ban” proposed already by the Biden administration on Chinese-made spare parts. Contemporary Amperex Technology Limited (CATL) and BYD dominated 40% of the global battery production market value by power in 2023. Key clients of CATL and BYD, including Tesla, Toyota and Nissan, will be affected by the ban.
Chinese automakers to ramp up local production in the Americas and Europe
Trump’s aim is to drive China to produce EVs and spare parts on US soil, and this will take place to some extent alongside re-pivoting in European markets:
- There is potential for BYD to expand EV operations at its California facility, from the current bus and truck production to include passenger cars. In view of potential Trump tax policy on imports from Mexico, BYD is likely to reduce production in Mexico, having already built a plant in Brazil to supply Latin America.
- In Western Europe, Volvo will likely increase EV battery production capacity at its plants in Sweden and Belgium. Meanwhile, SAIC plans to build two EV plants in Europe, one of which is slated for Spain.
- EV battery manufacturers including CATL and BYD will likely ramp up EV battery production in the US and Europe to meet demand from clients and compliance requirements. This will also reduce shipping costs and offset the increase in labour expenses, thereby maintaining price competitiveness.
China ready to play its “resource retaliation” card
Despite the strategic re-pivoting of its geographic production hubs, let it not be assumed that economic manipulation of the EV market is a one-way street. In January 2025, China announced plans to curb export of EV battery production technology.
Globally, Australia and Chile contributed 71% of upstream production of lithium by weight in 2024, but China controlled the downstream battery production with a 55% value share of global battery production
Source: Euromonitor International
This would result in a boost of China’s dominance in the supply of EVs and batteries, providing a potential bargaining chip for any forthcoming US tariffs. By the same token, China will be able to flex its investment muscle in the EU potentially to sideline EV/spare part production in those member countries which voted for the EU EV tariffs.
This changing landscape will afford Chinese manufacturers an opportunity to diversify into other key markets by local production, whilst prompting potential counteraction from China on EV supply chains. These shifts will reshape the competitive landscape of the global automotive industry.
For more details on the financial impact on EVs, please read Emerging Finance Trends Shaping Four-Wheeled EV Adoption.
