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Tariff Timebomb: how the new trade war is driving the global EV race
key takeaways.
The EV race is now about geopolitics as much as engineering, with China setting the pace, the US disrupting through tariffs, and legacy brands scrambling to stay relevant
President Trump’s 25–50% tariffs on foreign cars and parts are disrupting the global auto market, hitting EU and Chinese exports while accelerating protectionist policies
China has rapidly transitioned from imitator to innovator, with BYD, CATL, and Geely leading globally in EVs and battery tech thanks to state support, vertical integration, rare earth control, and innovative design
European carmakers face a strategic choice – compete or collaborate with China – while trying to protect market share through localised production and partnerships.
The electric vehicle (EV) revolution is reshaping the automotive industry and related sectors (including battery manufacturing, mining, and energy infrastructure) as the balance of power in the auto sector shifts from the legacy players to Chinese automakers. It comes against a backdrop of mounting trade pressure from US President Donald Trump. Understanding the interplay between trade policy, macroeconomics, and China’s accelerating dominance is essential.
Trade policy and global disruption
In early April, the US implemented a 25% tariff on foreign-made vehicles and parts, posing a direct threat to the global auto trade, especially to European and Chinese automakers. After expressing frustration over stalled negotiations with the European Union (EU), Trump escalated tensions by threatening a 50% tariff on all EU imports into the US, cutting short the 90-day negotiation window he initiated. Posting on X, EU Commission President Ursula von der Leyen said the EU needed more time to reach “a good deal,” noting that “The EU and the US share the world’s most consequential and close trade relationship.”1
The US tariffs are designed to pressure foreign automakers to move production to the US or face price disadvantages. This is a major setback for carmakers that rely on US luxury buyers for high-margin models. Mercedes-Benz, Volkswagen, and BMW have already warned of production cuts and potential delays to EV launches targeted at the American market. In 2024, the EU exported 750,000 new cars to the US, valued at EUR 38.5 bn (USD 43.9 bn), with EVs accounting for 15%, according to the European Automobile Manufacturers Association.2
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As part of its response to Trump’s tariffs, China has placed export restrictions to the US on several rare earth elements and magnets, essential for EV batteries and electronics in petrol-powered vehicles3 — a critical move given China, which has a near monopoly on the rare earth supply chain, produces 61% of global output and handles 92% of processing, according to the IEA.4
China has emerged as the global epicentre of EV innovation, transitioning from a manufacturing hub to a leader in technology and design
The new green superpower: from imitator to innovator
China has emerged as the global epicentre of EV innovation, transitioning from a manufacturing hub to a leader in technology and design. Homegrown giants like Build Your Dreams (BYD), Contemporary Amperex Technology Ltd. (CATL), and Geely have scaled rapidly, backed by coordinated state policy, domestic demand, and vertical integration across the EV supply chain.
BYD officially overtook Tesla in global EV sales in the first quarter of last year, delivering over 620,000 vehicles compared to Tesla’s 425,000. In addition, BYD saw full-year sales surpass the USD 100 bn mark as it won consumers over with its range of intelligence-led cars packed with high-tech features.5
CATL, meanwhile, dominates the global EV battery market, supplying domestic brands and legacy automakers like BMW, Ford, and Tesla. Its cutting-edge lithium iron phosphate (LFP) batteries offer cost and safety advantages that make Chinese EVs especially competitive in emerging and price-sensitive markets. At CATL’s Tech Day in Shanghai in April, the company’s Chief Technology Officer, Gao Huan, said: “Once again, we are pushing the boundaries of performance beyond limits.”6 Their second-generation Shenxing battery, released last year, delivers 600-km driving range after 10-mins of charging.
China has built a comprehensive EV ecosystem that is both sustainable and export-ready
China’s success is strategic. Through aggressive R&D investment, control of rare earth and battery raw materials, and favourable regulatory policy, it has built a comprehensive EV ecosystem that is both sustainable and export-ready.
BYD: The largest EV automaker in China and the world by volume. Controls its supply chain, including batteries and semiconductors. Leading domestic sales and expanding rapidly in Europe, Latin America, and Southeast Asia. They have pioneered super affordable EVs with their Seagull model starting at just USD 8,000.7
CATL: The world’s top EV battery manufacturer. Supplies Tesla, BMW, and other global brands. Known for innovation in lithium iron phosphate (LFP) and upcoming solid-state battery technologies.
Geely: Owns Volvo, Polestar, and Lotus. Strong platform development and global brand reach. Actively scaling Zeekr and exploring partnerships to increase exports.
The China dilemma: Partner or competitor?
China’s dominance in the EV sector has presented a paradox for European carmakers. On one hand, Chinese firms offer scale, technology, and supply chain efficiencies that could fast-track Europe’s EV ambitions. On the other hand, China’s EV exports to Europe are rising rapidly, posing a competitive threat in home markets. Brands like BYD and MG (owned by SAIC) are already gaining traction in Europe by offering high-quality EVs at lower price points.
The challenge for Europe is clear: compete with China’s scale and cost advantages or collaborate and risk long-term dependency. European automakers are now racing to adapt.
The challenge for Europe is clear: compete with China’s scale and cost advantages or collaborate and risk long-term dependency. European automakers are now racing to adapt. Strategies include relocating production to North America, building battery capacity locally, and forming alliances with Chinese innovators to retain competitiveness.
The road to electrification is challenging. The once-dominant legacy brands are now playing catch-up. Faced with shrinking market share and a growing innovation gap, foreign brands are actively partnering with Chinese brands to tap into local expertise and reconnect with Chinese consumers. Volkswagen’s “In China, for China” is a prime example of its survival strategy.
The message from this year’s Shanghai auto show was unmistakable: China isn’t just competing in the global EV race; it is setting the pace. The world’s biggest car show, covering 60 football fields of space, was once dominated by legacy carmakers. But this year, it was the Chinese EVs taking centre stage, with the likes of GM, Volkswagen, BMW, Nissan, and GM jostling for attention.8
China’s auto market is one legacy brands can’t afford to ignore. As of the end of 2024, China had more than 350 million cars on its roads. Among them, more than 34 million New Energy Vehicles (NEVs). That’s a 9% increase from 2023, reflecting the country’s rapid adoption of electrified vehicles.9 EVs now account for more than half of all new-car sales in China, according to data from the China Passenger Car Association (CPCA).10 That’s significantly higher than in the United States and Europe, marking the achievement of a goal Beijing originally set for 2030.
The surge of competitively priced Chinese EVs is driving rapid growth in electric vehicle adoption across emerging markets, especially in Latin America.11 Sales have doubled year-on-year, and the EV share of new car sales passed 6% in 2024, up from 2% in 2022. Chinese EV makers are leveraging strategic entry into the market via plug in hybrid’s (PHEVs) to help overcome the region’s limited charging infrastructure. Models like BYDs Song Plus DM-i are winning consumers over with its plug-in hybrid. As a result, BYD is quickly establishing itself as a market leader.
And when it comes to innovation, Chinese OEMs are overtaking their global competitors in deploying advance driver assistance systems, with China maintaining more than a 50% penetration rate for its L2 and L2+ ADAS.
The global EV race is no longer defined by technology alone; it’s a complex intersection of policy, protectionism, and power
How Europe’s carmakers are adapting to the EV shift
Europe’s established carmakers are progressing through the EV transition at varying paces, shaped by different strategic priorities, market exposures, and legacy infrastructure. Some are advancing through targeted partnerships and platform innovation, while others face structural headwinds in adapting to the scale and speed of the global EV shift – particularly in high-growth markets like China.
Volkswagen Group has made notable investments in EV platforms, such as its ID series, and in battery supply through PowerCo. It has expanded its footprint in China via a joint venture with FAW Group, aiming to launch 11 new models tailored for the Chinese market by 202612.
BMW continues to pursue a balanced approach to electrification, underpinned by strategic alliances with firms like CATL and Huawei. Its Neue Klasse platform is designed to support next-generation EV architecture, while its China partnerships reflect a strong localisation strategy13.
Meanwhile, Stellantis is progressing with a broad brand portfolio, although it continues to face challenges in scaling global EV platforms and gaining traction in key markets. Renault, too, is working to reposition itself in the EV space, having seen rivals move faster in China’s high-volume segments. Its efforts now focus on refocusing product lines and leveraging innovation in urban mobility and affordability.
A realignment in motion
The global EV race is no longer defined by technology alone; it’s a complex intersection of policy, protectionism, and power. As the world grapples with reducing carbon emissions to meet climate targets, the shift towards EVs has emerged as a critical component of the global environmental agenda. China is the dominant force in this high-stakes recalibration, Trump’s tariffs are the disruptor, and Europe is at a strategic crossroads. China's strategic acceleration in EV technology and infrastructure positions it not just as an innovator but as a formidable global force reshaping the industry. The winners in this new EV race will be those who embrace agility, scale, and geopolitical savvy — not just engineering excellence.
This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.
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