(Bloomberg) -- China is pressuring its automakers to pause expansion in the European Union due to the escalating trade conflict over electric vehicles, people familiar with the matter said.
Beijing is telling manufacturers to put on hold active searches for production sites in the region and signing of new deals, and generally keep a low profile while negotiations over EU tariffs on Chinese EVs are ongoing, the people said, declining to be identified because the talks are private. State-owned Dongfeng Motor Group Co. has already halted plans to potentially manufacture cars in Italy in response to the warnings, the people said.
China’s directive — which isn’t a mandatory order — may fuel tensions as both powers vie for dominance of the automobile industry. The EU earlier this month voted to boost tariffs on made-in-China electric cars to as high as 45%, arguing that Beijing provides unfair subsidies to its automakers. China denies that claim and has threatened its own duties on European dairy, brandy, pork and automobile sectors.
While Dongfeng Motor told Italian officials that Rome’s support for the EU tariffs was the reason for its pivot, Beijing is also concerned about potential overcapacity due to Europe’s bumpy EV shift and poor demand for Chinese cars in the market, one of the people said. Either way, the move is a setback for Prime Minister Giorgia Meloni, who has tried to attract more automaking to the country as local manufacturer Stellantis NV reduces output.
Italy’s Industry Minister Adolfo Urso traveled to China in July, holding meetings with executives including from Dongfeng Motor to win the company’s investment. His trip was supposed to help formalize a deal between Dongfeng Motor and Italy during Meloni’s visit to China later that month, but Beijing asked the automaker not to proceed, the people said.
It’s not just Dongfeng Motor that’s treading more carefully. Chongqing Changan Automobile Co., a state-owned carmaker based in western China, canceled an event to launch its brand in Europe, planned for this week in Milan, because the tariff negotiations are still ongoing, one of the people said.
The EU and China have pledged to work toward an alternative agreement that would avoid the need for levies.
A spokesperson for the Italian industry minister declined to comment. Representatives from Dongfeng Motor and Changan Automobile didn’t respond to requests for comment. Representatives from China’s Ministry of Commerce, or MOFCOM, didn’t respond to a request for comment.
Chery Automobile Co. pushed back a goal to start building EVs at a plant it’s taken over in Spain by one year to October 2025, as the company weighs the amount of work to be carried out at the Barcelona site following the EU’s tariff decision, Bloomberg reported last month.
Demand for battery-powered cars has suffered in Europe after several countries walked back subsidies. That’s hit Chinese brands led by Nio Inc. and SAIC Motor Corp.’s MG, whose EV sales as a whole in the region fell by nearly half in August to the lowest level in 18 months.
Still, Europe remains attractive for China’s carmakers because they can generally command higher prices there than at home, where they’ve been locked in a painful EV price war.
BYD Co. is pushing ahead with plans to build a factory in Hungary to help the maker of the Seal and Atto 3 electric cars sidestep EU tariffs. It’s also planning a $1 billion plant in Turkey, which has a customs-union agreement with the EU that would make BYD cars built there exempt from levies.
--With assistance from Haze Fan, Alberto Nardelli, Wilfried Eckl-Dorna, Luz Ding and James Mayger.
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