EU and China reach preliminary deal to curb hybrid car imports

The EU has reached a preliminary agreement with China to significantly reduce hybrid car shipments into the bloc.

The agreement follows an abrupt surge in hybrid car sales by Chinese brands across Europe, led by BYD.

This surge escalated trade tensions and piled pressure on European carmakers.

Following talks between EU Trade Commissioner Maros Šefčovič and his Chinese counterpart, an agreement was reached on Friday to significantly reduce hybrid car shipments to the EU.

European carmakers, under pressure from companies such as Chery, have been losing market share in China, where competitors develop new models more efficiently.

In Europe, appealing line-ups, including BYD’s Dolphin hatchback, offer robust electric vehicle technology at affordable prices.

This shift has forced carmakers such as Volkswagen to downsize workforces under broad cost-cutting drives.

Šefčovič stated that the agreement was the first of its kind and the result of “intense” negotiations conducted with China since June to reduce a daily trade deficit of 1.18 billion euros, which has caused mounting strain between the two economic powers.

Speaking at a press conference in Beijing on Friday, Šefčovič said the agreement “creates the possibility to reduce Chinese [hybrid vehicle] exports by more than half,” adding that this would lead to a reduction of “several million” rechargeable and battery-powered hybrid vehicles over the next four years.

“China agreed to reduce its exports without first entering a trade tension phase; this is happening for the first time,” the Commissioner said, referring to the standard investigations that must precede the introduction of protective measures under WTO trade rules.

Šefčovič said the Chinese recognised the rising political pressure across every member state in Europe, where “literally thousands of job losses” were risked due to an influx of cheap imports from China across multiple sectors, including chemicals and textiles.

Noting that EU leaders “clearly expected very rapid action” from the European Commission, and that the Chinese were aware of this, he stated:

“I am pleased to say that our Chinese partners appreciated this very strong political argument; therefore, we can reach a negotiated solution. This is not the end of the process. This is a very important first step, but only a first step.”

Earlier this week, senior EU officials announced that they would travel to Beijing to develop a pilot programme, which they termed a “proof of concept” with a single sector, hoping it could later be expanded to other areas under pressure from Chinese competition.

Šefčovič noted that he attached “great importance” to the negotiations because once a trade war begins, it is “very hard to stop.”

As part of the 16-point agreement, Beijing and Brussels will continue negotiations on automobiles, export restrictions on rare earth elements, and greater market access for EU food and beverages entering China.

China stated that both sides would adhere to “procedures on company price undertakings” for hybrid cars, implying that one way to cap sales could involve setting higher minimum prices for Chinese-origin cars sold in Europe.

A statement from the Chinese Ministry of Commerce noted that China was “willing to continue facilitating the approval of export licences for rare earth elements and permanent magnets destined for the EU.”

The statement also added that both sides “reaffirmed their commitments to handle differences appropriately within the framework of WTO rules, and to stabilise and balance bilateral trade and economic relations.”

In a statement issued today (12 October), the Chinese Ministry of Commerce stated that following “intensive consultations” between the two sides, the European Union’s new hybrid vehicle arrangement would allow export growth to continue, with an allocation for China that is no smaller than that of any other country.

The ministry added that this consensus “strongly protects the practical interests of Chinese enterprises, prevents an escalation of China-EU trade tensions, and provides a stable, predictable, and sustainable trade and investment environment for both sides.”

According to Chinese customs data, Chinese hybrid vehicle exports to the 27 EU member states tripled in the first half of this year to $7.5 billion, up from $2.5 billion in the same period a year earlier.

This figure is nearly nine times the $845 million in exports recorded across the whole of 2021.

Since the EU began applying additional tariffs on Chinese-origin electric vehicles in 2024, Chinese carmakers have increasingly turned to plug-in hybrid vehicles, which remain exempt from these additional duties.

Inadequate charging infrastructure in parts of Europe has also supported demand for plug-in hybrid vehicles, which are marketed on long range and high fuel efficiency.

According to Jefferies, SAIC, BYD, and Chery account for more than 90% of Chinese-origin hybrid vehicle sales volumes in the EU, with hybrid cars representing over half of these manufacturers’ European sales.

Support for the agreement also came from Renault. CEO Francois Provost argued that the European Union had reached an initial “important milestone” with the deal to slow the influx of hybrid vehicles from China, contributing to shaping the future of the European automotive industry.

“I had urged him to reach an agreement as soon as possible. Without an agreement, we would have faced a trade war with China, which would have been a ‘lose-lose’ situation for everyone,” Provost said.

Provost was among the business leaders who met Šefčovič ahead of this visit, which aimed to address widening EU trade imbalances.

Prior to talks with Chinese Commerce Minister Wang Wentao, France and Germany urged the EU to significantly broaden its retaliatory economic powers and investigate whether subsidised imports were damaging sectors such as chemicals and plastics.

In France, Renault already relies on several Chinese suppliers. Envision AESC assembles electric vehicle batteries for the bestselling R5 city car, as well as the R4 and Alpine A290 models, at a facility near Renault’s car assembly plant in Douai, northern France.

“We need Chinese companies to invest heavily in the European value chain, rather than merely setting up ‘screwdriver factories’,” Provost said.

Provost also called on the EU to move quickly on so-called “Made in Europe” rules, which could establish a local framework for Chinese players:

“If Europe does not take rapid decisions now, the collapse of the European automotive industry risks continuing. At least on the Chinese front, some progress has been made thanks to Commissioner Šefčovič.”