How not to revive Europe’s auto industry

The European Union’s trade commissioner, Maros Sefcovic, has reached an informal understanding with Beijing on auto export quotas covering conventional hybrids and plug-in hybrids, a move that closes the loophole left when the bloc imposed anti-subsidy duties on battery electric vehicles in 2024. The deal is being framed as a diplomatic achievement, but the record of the tariffs that preceded it suggests the EU is treating symptoms rather than the underlying disease. Chinese competition in automobiles is not primarily a subsidy problem; it is a strategic and managerial failure on the part of Europe’s legacy carmakers, and no quota system will fix that.

The 2024 anti-subsidy duties were designed to protect European manufacturers from what Brussels described as unfair Chinese state support. They have not delivered the intended result. Overall imports of Chinese EVs have continued to rise, and within that total, cars made by Chinese-origin companies have gained market share, particularly at the expense of Tesla. European producers are not holding their ground even with the tariff shield in place. Volkswagen reports higher EV sales in the EU but is losing heavily in China, and its chief executive has called for more help for the European industry. BMW, whose Neue Klasse design platform is among the most advanced of any European manufacturer, still appears to be behind the Chinese curve. Transport & Environment, a non-profit research group, calculates that despite the tariffs, Chinese EVs remain price-competitive with their European counterparts across every category in the EU market.

The problem is not simply subsidies. Chinese manufacturers such as BYD did benefit from state support, but their operations were refined in a ferociously competitive domestic market. European carmakers, by contrast, spent years optimising the internal combustion engine. As Hosuk Lee-Makiyama of the ECIPE think-tank put it: “Whilst Stuttgart optimised the diesel engine to the last decimal, the Chinese province of Anhui was dreaming of a self-driving electric car.”

China’s research and development spending as a share of GDP has risen sharply over the past quarter century and now far exceeds the EU’s. German R&D is well above the EU average but has grown far more slowly. Lee-Makiyama notes that European corporations distributed dividends while US, Chinese and Japanese companies invested in new technology. European governments and car companies also paid little attention to the coming Chinese challenge in the early 2020s, focusing instead on making their autos eligible for US tax credits. Germany’s long campaign to weaken the EU’s 2035 phaseout date for new internal combustion engine cars continues, as the recent meeting between Chancellor Friedrich Merz and President Emmanuel Macron demonstrated.

The plug-in hybrids covered by Sefcovic’s deal are attractive to European manufacturers because they use parts of the existing internal combustion engine supply chain and currently carry high profit margins. But they may prove a transitional technology, with battery EVs ultimately predominating. The risk is that the quotas become a long-term programme of managed trade in which consumers pay more for autos and Europe again locks in the dominance of underperforming incumbent companies.

Let me count the words and refine. I need to make sure I’m not using first person, no markdown, ASCII only.

Let me also make sure I’m not attributing to the source. The article should read as original reporting.

Let me structure it properly:

Paragraph 1: The deal and its significance
Paragraph 2: Why