China-EU deal brings new curbs on China’s US$7.5bil hybrid boom

The EU and China have reached an agreement to limit the export of hybrid vehicles from China to the EU, which could impact Chinese EV manufacturers that have seen rapid growth in this market segment. According to Chinese customs data, Chinese hybrid vehicle exports to the EU's 27-member states tripled to $7.5 billion in the first half of this year, up from $2.5 billion a year earlier.

This growth has put pressure on European manufacturers, including Volkswagen, which has been the region's leading plug-in hybrid seller. The EU's additional tariffs on Chinese-made EVs in 2024 have led Chinese automakers, such as SAIC, BYD, and Chery, to increasingly focus on plug-in hybrids, which are exempt from these extra duties.

The deal is expected to reduce the ports of several million cars over four years, although the specific implementation rules, volume caps, price floors, and carve-outs are still pending negotiation. Analysts view the agreement as a de-escalation of trade tensions and a potential relief from tariffs on Chinese hybrids. The move could strengthen the incentive for Chinese automakers to manufacture in Europe, but smaller players may reconsider their European ambitions due to the increased capital requirements of localisation.