Volkswagen’s deal highlights model-by-model tariff exemption approach
Europe has become crucial market for China after blocked access to US, India
Tariff exemption follows direct negotiation, sets precedent
BEIJING, Feb 11 (Reuters) - Major Chinese automakers will be next to knock on Brussels’ door after Volkswagen secured a breakthrough tariff reprieve for its China-made Cupra Tavascan SUV, multiple industry insiders and analysts said. The European Commission this week approved a request by the German auto giant’s Cupra brand to exempt the Tavascan SUV coupe from import tariffs in exchange for an agreed minimum price and a sales quota, following months of intense discussions that led to the first exemption since the EU introduced tariffs against China-based EV makers in 2024.
Chinese automakers are now looking at applying for similar deals for EV models they want to ship to Europe, according to the China Chamber of Commerce to the EU. While many automakers were eager to apply, some were weighing up the benefits of doing so, wary of the disclosure and paperwork required for approval, said one person with knowledge of the matter.
Under EU rules, carmakers can negotiate tariff exemptions for individual electric models imported from China.
“We see this as positive for both Chinese and foreign EV makers in China in order to leverage the efficient cost basis locally,” said Eugene Hsiao, head of China equity strategy at Macquarie Capital, about the Volkswagen deal, although he acknowledged that approvals would likely take time as they appeared to be handled on a model-by-model basis.
TRADE TENSIONS WITH EU The all-electric Tavascan had been subject to an extra 20.7% tariff since the EU imposed fresh duties on Chinese-made EVs in 2024, on top of an existing 10% levy. The higher tariffs have clobbered Volkswagen’s SEAT/Cupra division, nearly wiping out its operating profit in the first nine months of last year. It was notable that the first exemption from the tariffs went to a European company - the Cupra brand’s CEO previously warned that the tariffs jeopardised the future of the model in Europe.
The Commission did not give details on the agreed quota and minimum price for the model, citing confidentiality. It said Volkswagen had agreed to commitments related to EV investment projects in the EU in its effort to secure the tariff exemption, without giving further details.
The shift to the minimum pricing scheme shows how adept Chinese automakers have been at navigating the EV tariffs thus far, said Julian Litzinger, an automotive analyst with Dataforce. “When the original tariffs were introduced, it was expected that Chinese cars would become more expensive and therefore less attractive in the European market.”
Instead, Chinese carmakers made do with leaner profit margins and sold more internal combustion and hybrid models, which aren’t impacted by the tariff, he said.
The minimum pricing model “should make Chinese cars less attractive by ensuring their prices are comparable to those of European cars in the same category. For European brands manufacturing cars in China, this is good news.” Europe is an increasingly important market for Chinese automakers desperate to export more cars due to oversupply at home - the outgrowth of a brutal, years-long price war. Chinese EV makers are also effectively shut out of the world’s second- and third-largest auto markets, the United States and India, and sell very few cars in Japan, the next largest.
<h3>CHINA HAS SOUGHT COLLECTIVE DEAL</h3>
For Beijing, the tariffs of up to 35.3% on EVs are the biggest source of trade tensions with the EU. Brussels, meanwhile, wants to protect the European auto industry from a surge of cheap imports from the likes of BYD, SAIC Motor and others.
While China has sought a collective deal between its automakers and the European Union, the bilateral nature of Volkswagen’s deal is another sign that a collective option looks unlikely.
The China Chamber of Commerce to the EU held a meeting with automakers about how to negotiate with the EU about minimum pricing at the end of last month, two people said.
The European Commission last month set out the conditions under which China-based EV makers could replace EU tariffs with commitments to sell at minimum prices and said it would take into account Chinese EV investments in the bloc.
That price undertaking scheme was prompted by Volkswagen’s decision to negotiate directly with the EU, two people said.
VW started making proposals to the EU last year, before the January guidelines were published, one of these people said.
“VW has been losing market share in China in recent years, but has … been making a bigger push to localise their EV design and manufacturing,” said Macquarie’s Hsiao. “The export angle into Europe provides an additional market opportunity for their China-made EVs.”

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Volkswagen's recent tariff exemption for its Cupra Tavascan SUV has opened the door for Chinese EV makers to seek similar deals with the EU. Following the exemption, which was granted after extensive negotiations, Chinese automakers are considering applying for individual tariff exemptions for their models. The EU's new minimum pricing scheme aims to balance competition between Chinese and European brands, as Chinese manufacturers face high tariffs and limited access to major markets like the US and India. The situation highlights ongoing trade tensions between China and the EU regarding EV imports.

After Volkswagen deal, Chinese EV makers eye EU tariff talks of their own