EV Trade War Could Spread to Luxury Cars
Investors used to worry about an invasion of Chinese electric vehicles into Europe. Tit-for-tat tariffs would instead hit Porsches heading to China.
3 min
Europe’s politicians have no easy options for dealing with Chinese electric vehicles.
Slap a 100% tariff on them, as President Biden did last month , and China can easily retaliate against the more than 300,000 luxury cars it gets annually from the European Union. Let Chinese EVs into the EU with the current 10% tariff, though, and Chinese companies have an open road to take market share, given impressive technology and a roughly 30% cost advantage.
This week, the European Commission is expected to announce the results of a nine-month investigation into Chinese EV subsidies . Its most likely course of action is a cautious middle ground—a 25% to 30% tariff that would make European EVs broadly competitive with lower-cost Chinese imports. This could still trigger retaliation, but the EU’s executive body has to do something to protect an economically and strategically important industry.
This political reality only looms larger after this past weekend’s elections for the European Parliament, which rewarded right-wing populist parties in France and Germany. In the coming months a new European Commission will review the policy response to the EV investigation. Arguments for going easy on cheap Chinese EVs , because they help Europe’s climate goals, will presumably take a back seat to economic protectionism.
Just how much market share Chinese cars might take in Europe, at least in the short term, is debatable. After years of modest gains, they accounted for roughly one in 10 new EVs sold in Western Europe in the third quarter of 2023, according to Schmidt Automotive Research. But their share fell back in the final three months of the year, when France excluded China-made models from its subsidy program. High discounts on Chinese brands also point to stalling progress.
Many European consumers might not be ready for proudly Chinese brands such as BYD. The bestselling “Chinese” brand in Europe by far is MG, which is historically British but now belongs to China’s SAIC. Even it wasn’t one of April’s 10 bestselling EV models in the EU, according to data provider Jato Dynamics.
Many more Europeans would no doubt be converted to Chinese brands by the rock-bottom prices advertised domestically in China, which is in the throes of a vicious price war. But BYD launched its vehicles last year at surprisingly high prices, perhaps mindful of the EU’s investigation as well as the potential to juice its margins to compensate for a tough home market.
Still, the long-term threat posed by Chinese-made EVs in Europe is clear, and the EU won’t take any chances. One consequence of higher tariffs will be more local production. BYD is already building a factory in Hungary, while Volvo Cars will start producing its new EX30 in Belgium next year, rather than shipping it to Europe from China as it currently does. Tesla , which makes its Model 3 for Europe in its factory near Shanghai, will probably need to follow suit.
Other consequences will depend on China’s response. The China Chamber of Commerce to the EU said last month that Beijing was considering a 25% tax on imported cars with large engines. China’s current tariff on vehicle imports from the EU is 15%. This move would hit Porsche in particular as it makes about a quarter of its revenue in China and produces all its cars in Germany.
The irony is that investors previously assumed luxury cars were relatively insulated from the threat of Chinese EV imports. Last year, the market was instead worried about the competitive challenge to mass-market manufacturers such as France’s Renault . As politicians in Paris and Brussels responded, concerns shifted, contributing to a gaping divide in stock-market performance: Porsche’s stock is down 37% over one year while Renault’s is up 55%.
In the end, some kind of truce that keeps trade flowing is likely. The EU is more dependent on exports to China than the U.S., ruling out the kind of isolationism Washington is moving toward. That might be a reason to worry more about Renault again, though the French company appears to be making progress in cutting EV costs.
This points to the only sustainable European response to Chinese EVs: matching their technology and cost structure, at least as far as local differences allow. Higher tariffs can only buy a little time.
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From making unpopular decisions to learning when to listen, leaders from five businesses reveal what nobody prepared them for — and how running a company has challenged their expectations.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Elon Musk is exploring a potential merger between Tesla and SpaceX, a deal that could reshape the future of AI, robotics, autonomous vehicles and space technology. With a combined valuation potentially reaching $3.5 trillion, the move could bring Musk’s vision of an interconnected technology ecosystem closer to reality, although a deal remains uncertain.
5 min
Elon Musk has engineered ties between Tesla TSLA 3.41%increase; up pointing triangle and SpaceX SPCX 7.79%increase; up pointing triangle that are hard to break, and now he wants to fuse them together permanently.
Musk has run both Tesla and SpaceX concurrently over the past two decades, using a schedule that dictated which days he spent focused on each business.
The companies have often shared resources and personnel, signaling their close ties. Last year, SpaceX looked into creating a spacesuit for Tesla’s humanoid robot Optimus, a person familiar with the matter said. Tesla last week showed off its new Roadster, a vehicle featuring SpaceX rocket thrusters that it hopes to soon bring to market.
And in recent months, Musk has repositioned both companies by expanding beyond their core operations toward a shared mission centered on artificial intelligence.
The world’s richest man on Tuesday signaled his interest in tying up SpaceX and Tesla, marking what would be the biggest corporate merger of all time. Because he serves as chief executive of SpaceX and Tesla, Musk said committees of independent directors at both companies are evaluating a possible deal, adding that a transaction might not come to fruition.
The committees will likely evaluate, with lawyers and bankers, how each company would fare in a potential deal and how a deal might best be structured. They then present their conclusions to their respective boards, who typically vote on whether to proceed.
“It’s an odd Kabuki dance where two groups of people are talking and I can’t be in the conversation,” Musk told SpaceX investors on Tuesday in response to an analyst’s question about a potential deal.
For Musk, the merger supports his vision of a world full of autonomous cars, humanoid robots and weekly rocket launches, as well as the data centers and satellites required to keep the whole thing running.
Some investors and analysts said they expect a transaction would be structured as an all-stock deal, with SpaceX potentially paying a modest premium for Tesla shares.
SpaceX, which has a market value of about $2 trillion, said it is seeing sharp growth in revenue across its businesses, which include operating data centers, launching rockets and operating satellite networks such as the internet service Starlink. Tesla is valued at about $1.5 trillion and is expanding its operations beyond its automotive and energy business. Shares in both companies traded higher following the news Tuesday.
Musk’s substantial ownership stakes in both companies, along with voting control at SpaceX, has enabled him to set the deal in motion. Analysts and investors said the deal will probably face regulatory scrutiny internationally, though some see Musk’s close relationship with the Trump administration as an asset to getting approval.
Blurred lines
The companies haven’t said which directors are on the special committees evaluating a potential deal. Several SpaceX and Tesla board members have either personal or business ties to Musk. And like Musk, venture capitalist Ira Ehrenpreis sits on both boards.
In a filing this week, Tesla outlined millions of dollars in business agreements with SpaceX and its subsidiaries last year, including $143 million in car sales to SpaceX, $3.3 million in advertising that it bought on the social-media platform X and $430 million in revenue from the sale of Megapack batteries for SpaceX’s data centers.
The companies also split the cost of resources including the use of Musk’s SpaceX jet and the bill for his personal security, which he runs through a private company.
Employees at both companies routinely move between companies to work on special projects, and some executives have dual roles, including Charles Kuehmann, vice president of materials engineering at both SpaceX and Tesla, and Ashok Elluswamy, the vice president of AI software at Tesla who runs a joint venture with SpaceX called Digital Optimus.
Over the years, Musk has launched new startups within his empire, including brain-implant company Neuralink, underground-tunnel developer the Boring Company and xAI, the AI startup that merged with SpaceX in February.
It is that AI business that Musk thinks can serve a market worth tens of trillions of dollars, justifying the need for a merger.
The business case goes like this: Tesla is developing robotaxis and robots, which it calls “physical AI.” SpaceX is working on the back end of physical AI: the data-center capacity and internet connection required for those robotaxis and robots to operate continuously.
“I don’t see what the value of Tesla is if it’s not merged with SpaceX,” said investment adviser Ross Gerber, a former Tesla bull turned critic invested in both companies. “If they don’t merge, the brains of everything that runs Tesla is owned by another company.”
On top of it all, both companies face constraints on the supply chains they need to make this world a reality, particularly when it comes to chips. To address this, Musk earlier this year announced a joint venture between Tesla, SpaceX and Intel to design and manufacture chips in Texas. “The most epic chip-building exercise by far,” he has said.
Musk at the wheel
For Musk, a merger would also solve two problems: demands on his attention and his lack of control at Tesla.
Tesla for years was Musk’s only public company, a status that came with greater scrutiny. There, Musk reports to a public board, as well as individual investors who make up around 30% of Tesla’s voting power, according to FactSet.
The question of Musk’s attention became a particular focus for investors and the board in recent years after he acquired Twitter in 2022 and launched xAI in 2023, and again in 2025 as he spent time in Washington, D.C., running the Department of Government Efficiency in the early months of President Trump’s second term.
As Tesla’s car business suffered in 2025, Musk threatened to take his AI ambitions outside the company if he wasn’t granted 25% voting control. Last November, Tesla shareholders approved a new pay package for Musk, which created a path for him to vastly expand his stake.
As of Sept. 30, Musk owned a roughly 20% stake in Tesla, according to the company’s proxy filing.
The SpaceX IPO gave Musk a different path. When SpaceX went public in June, the deal’s structure enabled him to have more than 80% voting power at the company—so much that he can’t be fired and decisions can’t be made without his support.
If SpaceX acquires Tesla, he will likely stay in control.
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