China has directed its auto manufacturers to pause substantial investments in European Union (EU) countries that endorse additional tariffs on Chinese-built EVs, reported Reuters, citing sources.

This directive follows the implementation of new EU tariffs of up to 45.3%, which were introduced after a year-long investigation.

On 10 October,  at a Ministry of Commerce meeting, Chinese automakers, including BYD, SAIC, and Geely, were informed to suspend their large-scale asset investment plans, such as building factories, in those countries that support the tariff proposal.

The Chinese government's move to halt some investments in Europe indicates an attempt to gain leverage in discussions with the EU over alternatives to the tariffs.

It aims to prevent a significant decline in EV exports to this crucial market.

Europe accounted for over 40% of China's EV exports in 2023, and with the current 100% tariffs on Chinese-made EVs in the US and Canada, a decline in exports to Europe could worsen the overcapacity issues that Chinese automakers are experiencing domestically.

Italy and France, despite advocating for investments from Chinese automakers, have expressed concerns about the impact of inexpensive Chinese EVs on European manufacturers.

Chinese state-owned SAIC is in the process of selecting a location for a new EV factory in Europe and has plans to establish a parts centre in France.

Concurrently, Italy is negotiating with automakers including Chery and Dongfeng Motors regarding potential investments. BYD is constructing a facility in Hungary and considering relocating its European headquarters there due to cost considerations.

This week, EU and China agreed to continue technical discussions about possible alternatives to tariffs on electric vehicles produced in China.

Although the European Commission has engaged in eight rounds of technical talks with Chinese officials, it states that “significant remaining gaps” persist.