Chinese electric vehicle (EV) exports pose a dilemma for Germany and the rest of Europe. On the one hand, EVs are increasingly technologically superior to traditional internal combustion engine vehicles, and they reduce pollution and carbon emissions. On the other hand, China’s current dominance of EV production poses large commercial and security risks.

European auto companies are being undercut by Chinese-made EVs. In the summer of 2024, for instance, before the European Union (EU) imposed tariffs on Chinese imports, Chinese-owned BYD Dolphin models sold in Europe for about €32,400, while a comparable Volkswagen ID.4 cost around €37,000. Moreover, there is a potential security risk of an influx of Chinese-made EVs on European roads, as the United States has recently argued about these cars on its own roads and highways. In its waning days, the Biden administration warned that Chinese or Russian access to connected vehicle software or hardware “could allow our foreign adversaries to extract sensitive data, including personal information about vehicle drivers or owners, and remotely manipulate vehicles.” In the United States, the Trump administration is unlikely to adopt a softer approach to Chinese EVs than the Biden administration did—nor should it.

What Europe will do is still up in the air. It must balance economic needs, climate goals, commercial and security risks from Chinese-made and internet-connected vehicles, and increasingly unpredictable ties with the United States. To resolve this EV dilemma, one option is for Germany, Europe’s largest economy, to tap its considerable fiscal space and undertake transformational investments in defense, EV supply chains, and other infrastructure. It wouldn’t take this leap alone; several northern European countries could join in this effort.

Chinese EVs continue to take the world by storm. Chinese shipments of battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs) reached $44 billion in 2024, up 10 percent from the prior year.

The EU is the largest market for Chinese BEV exports, as measured by value. Additionally, China is rapidly increasing shipments to geostrategically significant markets in Southeast Asia and the Middle East.

While the value of Chinese BEV exports rose only slightly in 2024, the number of units shipped globally rose 7 percent. In 2024, shipments to the EU decreased, in large part due to tariffs and disruptions from Red Sea attacks. At the same time, China’s BEV exports to countries in the Association of Southeast Asian Nations, its second-largest export market, increased significantly in both value and volume terms. This massive-scale export is made possible by Chinese BEV exporters benefitting from synergy with China’s heavily subsidized shipbuilding and steel complexes. This results in new-build transoceanic car carriers, such as BYD’s new dual-fuel car carrier, to ship the vehicles abroad.

Finally, Chinese BEV prices differ significantly across markets. Per-unit prices suggest that most Chinese BEV exports to emerging markets, such as those in Southeast Asia, are disproportionately of low-cost two- and three-wheelers rather than larger and more expensive frames, though Chinese customs data do not specifically go into this level of detail.

Consider the case of Israel, which was the destination for 4.5 percent of all Chinese BEV exports by value in 2024 (a large share given its smaller population relative to other markets). Acknowledging potential risks that Chinese intelligence could gather sensitive data on military activities, the Israel Defense Forces (IDF) disabled media systems in leased Chinese Chery vehicles in October 2024. The IDF taking this step should give pause to Europe, especially given the close coordination between China and Russia. 

But there is a way to resolve the dilemma between the decarbonization gains and security risks posed by Chinese EVs: Berlin must step up. 

Germany should lead other European countries in investing heavily in EV supply chains while shielding the EU market from subsidized competition. More than many other European countries, Germany has the fiscal space for transformational investments. Germany’s general government debt-to-gross domestic product (GDP) ratio stands at a relatively comfortable 63 percent, versus 111 percent in France, 101 percent in the United Kingdom, and 123 percent in the United States. Denmark, the Netherlands, Norway, and Sweden all enjoy even lower general government debt-to-GDP ratios than Germany, although their collective GDP is only about 60 percent of Germany’s. Berlin is the key player, but other countries should play a supporting role. 

Germany’s investment needs are also dire. It was the only Group of Seven (G7) economy to shrink in 2023; last year its GDP declined again. Economists—including the European economy commissioner—agree that Germany’s debt brake is a main culprit for persistent underinvestment. The constitutionally mandated brake limits the federal government’s annual deficit to approximately 0.35 percent of GDP and essentially blocks its sixteen federal states from borrowing. Fortunately, Germany’s likely next chancellor, Friedrich Merz, is moving ahead with reforms of the debt brake to allow for more investment in defense and infrastructure. This was an important step for the famously frugal nation, but it should quickly be followed by another.

German politicians are right now making strides to lift their country’s debt brake. It is important that they are successful. Military aggression from Russia, systemic rivalry with China, and increasing uncertainty about the trajectory of US-Europe relations mean that Germany and Europe face profound and immediate challenges that require action.

If Germany and northern European countries tap credit markets for investment, there are several worthy initiatives. The defense sector, particularly vis-à-vis Ukraine, must be the highest priority.

But EVs are another worthy security-related investment for Germany and other European powers. By reducing reliance on Chinese EVs, Europe can mitigate a security risk while stabilizing employment, as the automotive sector’s direct and indirect jobs comprise 6.1 percent of total EU employment.

Critically, the development of EVs—and their underlying batteries—will complement European defense capabilities. As the war in Ukraine has demonstrated, batteries are a dual-use technology, used in items such as first-person-view drones, lithium-ion powered submarines, and more. Building battery—and drone—supply chains would enhance Europe’s military capabilities. Of course, these supply chains will require the construction of not only manufacturing facilities but also the mining and processing of key materials such as lithium and rare earth elements.

In short, this would amount to a German-led overhaul of European competitiveness, and it would require substantial—though not excessive—investments. Chinese EV subsidies over a fourteen-year period are estimated to exceed $230 billion, or under 5 percent of Germany’s GDP; Berlin would also not need to commit funds at that level. Moreover, Germany could accelerate technological catch-up and limit costs by forcing technology transfer from Chinese firms—a tactic that Beijing has repeatedly embraced, including vis-à-vis German firms. It will not be easy to secure tech transfers, but it’s worth noting that European nations take in roughly half of all Chinese BEV exports by value. Europe is not without leverage.

In addition to investing in domestic EV supply chains and securing technology transfers from China, Germany and other European countries, including the United Kingdom, may need to undertake sensible risk-mitigation measures. It may make sense, for example, to bar Chinese-connected vehicles near NATO facilities in Europe, and to bar NATO personnel from purchasing or operating these vehicles. This will be difficult, but it is an approach that must be considered to ensure security. Europe should comprehensively study the security risks of Chinese connected vehicles and adjust policy as appropriate.

For better and for worse, Europe must increasingly learn to rely on itself. Accordingly, it’s time to remove self-imposed limitations, such as Germany’s debt brake and unnecessary internal European trade barriers. By undertaking critical investments in sectors such as defense, EVs, and other infrastructure, Germany and other European countries can ensure the continent has the means to overcome the threats and challenges it faces from multiple directions.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and Indo-Pacific Security Initiative and editor of the independent China-Russia Report. This article reflects his own personal opinions.

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