Author: Prof. Engr. Zamir Ahmed Awan, Founding Chair GSRRA, Sinologist, Diplomat, Editor, Analyst, Advisor, Consultant, Researcher at Global South Economic and Trade Cooperation Research Center, and Non-Resident Fellow of CCG. (E-mail: awanzamir@yahoo.com).

The global automotive industry stands at a crossroads. President Trump’s tariff policies have not only disrupted long-standing trade practices but have also reshaped global trade routes, partnerships, and the very dynamics of international competition. The EU’s automotive giants, particularly Germany’s BMW, Mercedes-Benz, and Volkswagen, have found themselves in an increasingly precarious situation due to the soaring tariffs imposed on EU-made vehicles entering the U.S. market. These tariffs, initially set at 25%, were recently reduced to 15% through a deal between the EU and the U.S. Yet, many experts remain skeptical that this temporary relief will be sufficient to curb the deeper economic uncertainties posed by these trade policies. Against this backdrop, one market stands as a beacon of stability and opportunity: China.

The U.S.-EU Tariff Dilemma: A Crisis of Competitiveness

The U.S.-EU trade relationship has been in turmoil since President Trump’s administration introduced aggressive tariff hikes on EU-produced automobiles. The consequences have been swift and severe. Germany’s automotive sector, which has traditionally relied heavily on the U.S. market, has experienced a significant downturn in profits. BMW, Mercedes-Benz, and Volkswagen, the stalwarts of the German auto industry, reported steep declines in their earnings for the first half of 2025. BMW’s group revenue fell by 8.2%, with net profit plummeting by 29%. Mercedes-Benz saw a dramatic drop in its net income from 6.1 billion euros in the previous year to a mere 2.7 billion euros. Similarly, Volkswagen Group, while not as severely affected as its German counterparts, reported a marginal 0.3% decline in sales revenue, with its luxury brand Porsche incurring substantial losses.

The tariffs, combined with rising energy costs and labor expenses, have undermined the EU auto industry’s competitiveness. Upstream suppliers, burdened by U.S. tariffs on steel and aluminum, have passed on increased production costs to manufacturers, further squeezing margins. A report from the German Association of the Automotive Industry (VDA) highlighted that, in 2024, Germany exported 450,000 vehicles to the U.S., while also producing 840,000 vehicles in U.S. facilities. This cross-border production model, once seen as a pillar of the EU auto industry’s strength, is now under threat due to the U.S.’s tariff policies.

The Shift Toward China: Stability, Growth, and Technological Innovation

In light of these growing uncertainties, German automakers have begun pivoting toward China, a market that promises greater regulatory stability and a clearer growth outlook. China’s role in the global automotive industry cannot be overstated. As the world’s largest automobile market, China has emerged as an essential hub for automotive innovation, production, and sales. In fact, the Chinese automotive industry is not just massive in scale but is also a leader in the future of transportation—electric vehicles (EVs). China’s aggressive push towards EVs, supported by state-backed incentives, has positioned the country ahead of the EU in terms of both production and technological development.

Volkswagen’s strategy in China exemplifies the growing importance of the Chinese market. The company is heavily investing in local production and establishing partnerships with Chinese firms to accelerate the adoption of EVs. Volkswagen’s Chief Financial Officer, Arno Antlitz, has expressed confidence in expanding local platforms and strengthening battery partnerships in China. Moreover, BMW is collaborating with Chinese tech firm Momenta to co-develop next-generation driver assistance systems tailored for the local market. The company’s Chinese subsidiary, BMW Brilliance Automotive (BBA), has also seen significant success, with over 6 million cars produced at its Shenyang plant since its inception.

These collaborations are emblematic of the larger trend in the automotive industry: the EU is increasingly reliant on China’s edge in battery technology, scale production capabilities, and technological expertise to stay competitive in the global market. Porsche and Mercedes-Benz, renowned for their performance advantages and luxury appeal, are also intensifying their focus on the Chinese market, not just for sales but also for innovation and technological breakthroughs. Ferdinand Dudenhoeffer, a noted German automotive expert, has emphasized that “the future of the auto industry is in China,” pointing to China’s growing dominance in battery technology and the rapid expansion of its EV infrastructure.

EU vs. China: A Comparative Overview of Strengths

The EU and China, though both key players in the global automotive industry, have distinct strengths and competitive advantages. The EU’s automotive industry, particularly German manufacturers, is renowned for its engineering excellence, brand prestige, and focus on high-performance vehicles. Brands like BMW, Mercedes-Benz, and Audi have long been associated with quality, luxury, and innovative design. In the face of growing pressure to transition to electric mobility, these companies are focusing on blending their legacy strengths with the demands of a greener, more sustainable future.

However, as much as the EU has invested in EV technology, it lags behind China in terms of market penetration and technological scale. China’s BYD, NIO, and Geely have already established themselves as formidable players in the EV market, producing affordable yet high-quality electric cars for both domestic and international markets. Moreover, China’s aggressive state-backed push for battery production and research has given its automakers an edge in the global race toward sustainable mobility.

China’s advantages extend beyond just production. The Chinese government has been proactive in shaping the future of the automotive sector, with policies aimed at promoting the adoption of electric vehicles, providing incentives for consumers, and building out the necessary infrastructure. China has more than 1.3 million charging stations, a number that far outpaces the EU and the U.S. combined. This gives Chinese automakers a significant advantage in terms of the consumer experience, as EV owners in China are far less likely to face range anxiety or charging difficulties.

In comparison, the EU auto industry’s transition to electric mobility has been hindered by regulatory fragmentation and a slower pace of technological adoption. Although there are ambitious targets for EV adoption, particularly with the European Green Deal and the European Commission’s push for carbon neutrality by 2050, EU automakers are struggling to keep pace with the rapid advancements in China. Moreover, high production costs in Europe and reliance on fossil fuel-based energy sources have also made the transition to electric vehicles more expensive for European consumers.

The Path Forward: EU-China Cooperation

In light of these challenges, it is clear that EU automakers must strengthen their ties with China. The EU cannot afford to be left behind in the race toward electric mobility, and collaboration with China presents an opportunity to not only access the world’s largest EV market but also benefit from China’s technological innovations and cost efficiencies. By working together, European and Chinese automakers can pool resources to overcome the challenges posed by President Trump’s tariff policies and geopolitical instability.

There are already signs of deeper cooperation between the two regions. BMW’s partnership with Momenta, and Volkswagen’s increasing reliance on local production in China, are just the beginning. The potential for further collaboration is immense, particularly in the areas of battery technology, autonomous driving, and smart manufacturing. EU automakers can learn from China’s success in scaling up EV production and infrastructure, while China can benefit from Europe’s engineering prowess and expertise in luxury vehicle design.

The EU must view its relationship with China as a mutually beneficial partnership rather than competition. While European brands have long been synonymous with quality and prestige, they can now leverage China’s scale and innovation to stay ahead of the curve. In turn, China’s automakers can gain access to the European market and the reputation that comes with a partnership with established European brands.

A Compulsion for EU-China collaboration

In a world where trade policies are increasingly shaped by geopolitical considerations, the EU’s auto industry is at a crossroads. President Trump’s tariffs have disrupted traditional trade relationships, particularly with the U.S., and pushed German automakers to seek alternative markets. China stands as the most promising opportunity for these manufacturers, offering not only a vast and growing market but also cutting-edge technology and production capabilities. By embracing deeper cooperation, the EU and China can foster a win-win scenario that benefits both sides and strengthens their global competitiveness in an increasingly electrified automotive landscape.

(ASIA PACIFIC DAILY)