As the Biden-Harris administration aims to accelerate the shift to electric vehicles, the auto industry is striving to enhance efficiency and reduce costs to remain competitive against inexpensive Chinese electric vehicles. China’s stronghold on the EV battery supply chain and the processing of essential minerals for EVs enables it to offer electric vehicles at significantly lower prices than those made in Western countries. In response, Western nations are increasing tariffs on Chinese-built electric vehicles to protect their domestic auto sectors, compelling Chinese companies to establish manufacturing facilities in Western countries as their home market reaches saturation. Europe supports these tariffs, citing China’s substantial subsidies to boost its EV industry. While Chinese-made vehicles have not yet posed a major challenge in the U.S., they have captured over 20 percent of Europe’s EV market. These tariffs might hinder the transition to renewable energy, as the additional tax could make Chinese electric vehicles less affordable for many buyers.
Auto Makers Lay Off Workers
General Motors is eliminating over 1,000 salaried positions globally within its software and services division, which includes the OnStar connected-car business, as part of its operational streamlining efforts. These layoffs account for approximately 1.3 percent of the company’s global salaried workforce of 76,000 at the end of last year, which comprised around 53,000 U.S. employees. The reductions include about 600 positions at GM’s technology campus near Detroit. The job cuts come as automakers work to trim costs and headcounts amid concerns of an industry downturn, all while investing billions in emerging markets like all-electric vehicles, driven by regulations on tailpipe emissions set by the Biden-Harris administration that manufacturers must meet or face substantial fines.
Stellantis, which owns brands such as Chrysler, Ram, Jeep, and Dodge, will lay off 2,450 workers in the U.S. due to the discontinuation of the older generation of the Ram 1500 pickup. The latest version of the vehicle will remain in production. The corporation’s PR department described the reason for the layoffs as: “We introduced the new 2025 Ram 1500 Tradesman with incredible value and content. The upgraded electrical architecture allows new technologies useful to commercial fleets for better tracking and improved safety systems.” Stellantis is also reworking other parts of its lineup. The company’s Dodge division will stop making the gasoline-powered versions of its iconic Challenger and Charger.
Stellantis CEO Carlos Tavares is visiting the U.S. to address declining profits in North America and to offer reassurance to employees and investors. Tavares noted that the company’s North American operations are struggling due to a combination of high vehicle inventories, manufacturing challenges, and a lack of market adaptation. Stellantis is aggressively pursuing cost reductions as competition from Chinese automakers heats up.
The automotive industry is grappling with persistent challenges as it navigates a shift towards electric vehicles, which are expected to be the future but are currently underperforming in sales. Meanwhile, major automakers must decide which profitable gasoline-powered models to retain. Ford, for instance, is shifting its focus toward hybrids in a significant reset of its electric vehicle strategy. The company recently scrapped plans for a large electric SUV due to market conditions and is now emphasizing hybrid technology. Ford has been facing losses of around $44,000 per electric vehicle sold and is seeking ways to reduce expenses.
Tariffs Come into Play
To shield European manufacturers from unfair competition, the European Union is proposing an additional 9 percent tariff on Tesla vehicles imported from China, while other automakers could face tariffs as high as 36.3 percent. These updated tariffs represent a significant increase for major companies producing electric vehicles (EVs) in China and aim to create a more level playing field with Chinese EV manufacturers, many of whom benefit from government subsidies. The new tariffs will be added to the existing 10 percent tariff already imposed on Chinese-made EVs.
The EU began its investigation into Chinese automakers in October, and while it initially proposed a 21 percent tariff for Tesla, it lowered this rate because Tesla does not receive the same level of Chinese government subsidies as leading Chinese automakers. The final tariffs, set to be in place for five years, are slightly reduced from earlier proposals made in June. They range from 17 percent for BYD, China’s largest EV producer, to 36.3 percent for SAIC Motor, the state-owned manufacturer of MG Motors. Geely Auto, which owns Volvo Car, faces a rate of 19.3 percent.
German automakers BMW, Mercedes, and Volkswagen, who cooperated with the EU’s investigation, will see tariffs of 21.3 percent on their vehicles produced in China. Unlike Tesla, which operates an independent production site in Shanghai, these German companies are involved in joint ventures with Chinese firms. Volkswagen’s association with SAIC means that some of its cars will face the highest tariffs.
In contrast to the 100 percent tariffs imposed by the Biden administration on Chinese EVs in May, the EU’s proposal reflects an effort to balance trade with China while protecting local production. Since the initial tariffs were announced, several Chinese automakers have announced plans shift production to Europe.
Chinese imports have captured over 20 percent of Europe’s EV market share over the past three years. However, EV sales grew by only 1 percent in the first half of 2024 compared to the same period the previous year.
Ongoing negotiations between the EU and China could lead to measures to counteract the proposed tariffs. China has criticized the EU’s actions as protectionist and has lodged a complaint with the World Trade Organization. China claims that the competitiveness of Chinese-made electric vehicles comes not from subsidies, but from its scale and supply chain advantages.
EU member states must vote on the new tariffs, which are scheduled to take effect on October 31. Industry experts predict that these increased duties will likely impact consumers more than Chinese automakers, potentially raising the prices of affordable EVs. This could lead to more Chinese automakers moving assembly to European countries such as Hungary or Spain, where production costs are higher, further driving up prices for consumers. The EU investigation found that subsidies support the entire supply chain for Chinese EVs, which allow manufacturers to significantly lower production costs, giving them an unfair advantage over European competitors. Despite this, many European car manufacturers remain heavily dependent on China, the world’s largest automobile market, for both exports and domestic production.
Conclusion
Western automakers are streamlining operations to cut costs to compete against China’s cheap electric vehicles. European and U.S. politicians have placed tariffs on cars made in China to protect their domestic auto industries. However, the tariffs could slow the energy transition and hurt Western auto manufacturers, who are dependent on China’s large auto market and its dominance of EV batteries and critical minerals. The tax that the tariffs create can put the cheaper Chinese electric vehicles out of reach of car buyers. This catch-22 comes when Western politicians push their preferred technologies through mandates and regulations rather than allowing the market to work.
