How should the EU govern Chinese investment in its EV transition?

The EU’s decarbonisation strategy hinges on the large-scale adoption of electric vehicles (EVs). But European carmakers continue to face structural disadvantages: high production costs, limited battery manufacturing capacity and a lack of affordable models. Chinese firms have stepped into this gap not only by offering competitively priced EVs, but also by expanding their manufacturing footprint across Europe’s EV and battery sectors.

This presents the EU with a strategic challenge: accelerating its green transition while managing rising dependence on foreign (especially Chinese) technologies.

Chinese foreign direct investment (FDI) brings clear potential benefits: it expands battery manufacturing capacity, supports regional employment and may enable knowledge transfer to help European manufacturers get closer to the innovation frontier. But long-term negative consequences could include market distortions from potentially subsidised competition, long-term economic dependencies and data security risks linked to foreign-controlled infrastructure.

Despite recent tariffs and initiatives under the Clean Industrial Deal, EU policy remains fragmented in its approach to FDI. Divergent national strategies on investment screening and subsidies undermine collective leverage – especially as the EU prepares for the July 2025 summit with China, where EV duties and market access will take centre stage.

Our new Policy Brief proposes a strategy of conditional engagement. The EU should neither reject nor passively absorb Chinese capital, but govern it using market access, sustainability criteria and trade-defence tools to shape investment in line with its climate, industrial and security goals.

Governance, not exclusion, is key. Without timely action, locked-in capital and embedded supply chains may reduce the EU’s ability to steer its industrial future.

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