Charged with Consequence: How Europe navigates the risks of Chinese Electric
There is no guarantee that the European automotive sector will survive its current predicament. European automakers face the coming together of an economic storm, which challenges the viability of their current business model: whereby Chinese EV producers are gaining a significant market share in Europe, at the same time as European automakers are facing declining sales in China and are unable to compete in third markets.
The Economic Impact: A Threat to Jobs and Industry
The automotive industry is a major pillar of the European economy, accounting for 7% of the EU’s GDP, 6.1% of total EU employment, 8.5% of EU employment in manufacturing, and provides 13.8 million Europeans with direct and indirect employment. At the time of writing, European automotive companies have already announced potential job cuts exceeding 100,000 positions in the automotive sector and jobs in the supply chain to respond to economic pressure from Chinese EVs.
China’s Growing EV Presence in Europe and Beyond
China’s EV market penetration in Europe, while still relatively small compared to overall automotive sales, has grown rapidly from 1% in 2019 to around 8% in 2023. While a study by Schmidt Automotive Research has found that Chinese EV sales were at around 10% of the EV market in Western Europe for the first half of 2024, the European Commission has forecasted that the number could rise to 15% by 2025 across Europe.
At the same time, Chinese EVs are making significant inroads in key global regions, including in the Middle East, Latin America, and the Asia-Pacific region. The European neighbourhood outside of the EU (including Russia) accounted for a third of all EU automotive exports in 2023. European markets will therefore remain a key battleground for European and Chinese automotive producers.
Beyond Economics: Data Security and Strategic Risks
Aside from the economic concerns, there remain further risks to Europe that include data security, dependency, and disruption risks. Under China’s Data Security Law (2021) and National Intelligence Law (2017), Chinese EV producers and companies in their supply chain (including Cellular Internet of Things Modules Manufacturers such as navigational systems) have a responsibility to ‘assist, support, and cooperate with national intelligence efforts’. At the same time, it is illegal to disclose the extent of that cooperation with a foreign government. Recognizing China’s legal requirements for data collection and the broader data security risk, the Biden Administration issued an Executive Order on September 23, 2024, banning the import and use of Chinese-connected EVs in the U.S.
The planned integration of Chinese AI software, such as DeepSeek, into new Chinese EV models will only exacerbate data security concerns, given that DeepSeek has faced restrictions in several countries already.
Human Rights Violations in the Chinese EV Supply Chain
Additionally, China’s EV supply chain has been linked to Uyghur forced labour in Xinjiang, child labour in lithium extraction in the Democratic Republic of Congo. This includes through local suppliers participating in Uyghur labour transfer programs and aluminium being exported out of the Xinjiang region and used in other parts of the country to produce car parts. Similarly, forced labour and child labour is allegedly used in the extraction of lithium in the Democratic Republic of Congo, leading to the potential exposure of Chinese EV battery producers to forced labour in their supply chain.
Outside of links to Chinese companies blacklisted for their involvement in alleged human rights violations in Xinjiang, CATL has also been accused of clocking its employees on a “8am to 9pm six days a week” work regime, not only in violation of China’s own labour laws but also at odds with the EU’s supply chain regulations against unfair work conditions. Such stringent work culture is prevalent in China’s tech scene, including reportedly causing numerous instances of death from overwork.
Volkswagen’s recent exit from Xinjiang highlights mounting pressure on companies to address these concerns. These issues are highly relevant to the EU’s new forced labour screening mechanisms: Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
A debate is ongoing in U.S. Congress over whether companies linked to Uyghur forced labour should be added to the Uyghur Forced Labor Prevention Act (UFLPA) entity list. If major Chinese EV battery producers were added to the entity list and are sanctioned, European automakers relying on these suppliers could face significant export restrictions to the U.S.
Chinese Investments in Europe: Trojan Horses for Market Domination?
Entangling investments from Chinese EV producers into EU Member States through planned Chinese EV plants in Hungary and Spain will not meet the job losses from the European automakers they undercut, instead they will likely be used to bypass tariffs, expand market share, and undermine European competitors, raising concerns about long-term economic independence. Despite the discussions of the EU gaining “Strategic Autonomy” from China and the USA, Europe’s automotive industry remains one of its few industrial strengths. However, increasing reliance on China for EVs and future green technologies risks creating further economic and geopolitical vulnerabilities. As Europe relies on China for the green transition this dependency could be weaponised by China to silence criticism of its material support for Russia’s invasion of Ukraine, its military threats against Taiwan, and its human rights record.
As the COVID-19 pandemic and Russia’s invasion of Ukraine have demonstrated, a strong industrial base is essential for European resilience. Europe’s automotive sector could be repurposed in future crises for medical equipment production or even defense manufacturing. However, without the industrial capacity, the talents and skills the EU will not have the strength to weather future crises.
Our Recommendations
The EU should commit to reviewing the EU’s countervailing tariffs on Chinese EVs within the first year of the new EU Commission.
The EU should review the EU’s current Foreign Direct Investment Regulation to focus on rules regarding joint ventures to look at local ownership requirements, data security requirements, and local content requirements.
The EU should legally require foreign EV companies from a country where the EU does not have a data standards equivalency agreement to store data on European servers and to commit not to transfer the data overseas under any circumstances.
The EU should negotiate economic security partnership agreements with Japan and the Republic of Korea. One target under these partnerships would be to encourage joint ventures between European automotive producers and world leading Japanese and South Korea battery producers including Samsung, SK Innovation, Panasonic, and LG Energy Solution.
The EU Commission using the ICTs security and competitiveness working group of the EU-US Technology and Trade Council to negotiate shared EU-US standards on Cellular Internet of Things Modules (CIMs) and develop mutual European and American standards for EVs and connected vehicles.
The EU should investigate forced labour in Xinjiang, add the geographic region of Xinjiang to its forced labour risk database, and introduce guidelines for European businesses regarding the prevalence of forced labour goods in the automotive supply chain.
European policymakers should expand tax incentives and other measures to encourage European automotive companies to work together to share research, development, and production costs for EVs.
The European Commission should work with European Member States to coordinate Next Generation EU and Multiannual Financial Framework funds to support the development of the European EV sector, including encouraging matching private sector investment in the EV battery supply chain and EV charging infrastructure. This should serve as the frontrunner to an EU-wide Green Industrial Strategy.