Scant benefits for significant risks: price undertakings for Chinese electric vehicles entering Europe

On 12 January, the European Commission set out the conditions under which Chinese electric vehicle (EV) producers exporting to Europe would fall under a new minimum pricing system, or price undertaking. Meant to replace the tariff regime imposed in October 2024, this new system would allow Chinese EV exporters to propose minimum sales prices to avoid tariffs. This approach could have significant drawbacks, including higher costs for European consumers and compliance complexities.

Exporters would be obliged to maintain prices above a threshold, allowing them to retain larger profit margins. This could raise EV prices for European consumers and facilitate more innovation and market expansion by Chinese firms. EU prices could be set artificially high, as the price threshold will be based on import prices going back three years, when EV prices were much higher.

The Commission’s model-specific methodology also presents administrative challenges. Minimum import prices would be set per EV model and would account for variations in battery size, range and other features. However, EV technology is moving rapidly, with frequent specification updates. It is unclear if the Commission has the capacity to oversee such detailed pricing adjustments. For instance, determining whether upgraded battery capacity, for example, justifies a price increase of several hundred or thousand euros requires specialised expertise. The process could lead to drawn out verifications, disputes and compliance checks, potentially complicating trade flows and consumer choice. 

The tariff regime was meant to protect Europe’s auto industry from an influx of cheaper imports produced in China, with tariff revenues accruing to the EU budget. If Chinese exporters choose price undertakings over tariffs, EU budget revenues of approximately €2 billion annually could be forgone, based on EV imports from China of about €10 billion and an average tariff rate of about 20%. This sum is significant. It could be used, for example, to enhance EU R&I programmes or to strengthen domestic EV ecosystems. This is not to suggest that tariffs should be imposed just for the revenues, but it is clear that switching to minimum price undertakings results in a loss of revenue, with consequences for budgets and innovation.

Moving to minimum price undertakings also has the unintended consequence of harming the EU’s credibility as a global trade actor at a time when important trade deals are under discussion. If the EU appears willing to dilute its trade-defence measures through workarounds such as minimum price undertakings, doubts might arise about the bloc’s commitment to protecting its market from unfair practices. This is particularly concerning in an era of geopolitical fragmentation, when the EU aims to project unity and strength by upholding rules-based trade. It could also complicate ongoing negotiations, from critical minerals agreements to digital trade pacts. 

Under current rules, the EU is open to minimum price undertakings; in practice, however, no price undertaking system has been enacted in anti-subsidy cases since a 2013 deal on photovoltaic panels. Proposing a price undertaking now signals that the Commission is hoping for certain benefits, though those are hardly guaranteed. 

The Commission’s move likely reflects its desire for rapprochement with China as transatlantic tensions increase, and to forestall Chinese retaliatory measures on EU dairy, cognac and pork products, after pressure by the most affected EU member states. The pivot to price undertakings may also be meant to forestall challenges in the World Trade Organization to EU tariffs. However, if the EU’s subsidy assessments are robust, the tariffs should hold up against scrutiny by a WTO panel. Pre-emptively offering alternatives might not yield substantial concessions, given China’s track record in protracted trade negotiations. 

The Commission has linked price undertakings to investment commitment by Chinese EV makers in producing cars in the EU to create a stronger domestic EV ecosystem; these investment commitments will be ‘considered and assessed’ when companies apply for a price undertaking. This reflects a broader push by the Commission to establish guidelines before allowing Chinese companies to invest in Europe. Obligations on Chinese companies could include ‘induced’ tech transfer, local content obligations and operating through joint ventures. However, the switch to price undertakings increases the profit margin on exports, which is likely to reduce Chinese companies’ interest in producing cars in Europe: their margin will now be higher when producing in China and exporting to Europe.

All in all, potential gains in investment and tech transfers are unlikely to materialise, while the revenue losses and other drawbacks are simply too great to be ignored. For all these reasons, the proposed price undertaking should be scrapped.