China calls off plan for €3.8 billion EV battery unit in Germany

China has reacted sharply to European Union's decision to impose tariffs of up to 45 per cent on its electric vehicles by terminating all major projects in Germany and Italy.

The first casualty was the €3.8 billion battery plant, proposed to be set up by Svolt Energy Technology in Germany.

Svolt Energy is a specialised research and development company engaged in the production and sale of battery cells, modules and a whole range of battery packs and storages.

Following orders from Beijing, state-owned Chinese automaker, Dongfeng Motor Group, halted negotiations for setting up new units for expanding production in Italy. 

Wuhan, Hubei-based Dongfeng Motor Corporation Ltd is the smallest of the four state-owned car manufacturers in China. The company reported sales of 671,000 cars in 2023, lower than its bigger peers - SAIC Motor, Changan Automobile and FAW Group.

The trigger for EU’s tariff action is German carmaker Volkswagen Group’s plan to close some of its plants in Germany after rising competition from Chinese electric cars forced the company to deepen cost cutting.

Volkswagen, one of the world’s biggest carmakers, said on Monday that it could not rule out plant closures in Germany besides other measures like reduction in workforce and reduction in employee pay to “future-proof” the company.

Volkswagen employs about 295,000 people in Germany and nearly 683,000 worldwide.

Volkswagen is losing its market share in China, its biggest market. It is facing competition from Chinese brands like BYD, both in China and Europe, including its home market, Germany.

Chinese automakers are trying to circumvent the EU tariffs, by building plants in Europe to manufacture electric vehicles. 

BYD, the leader in China’s electric vehicle market, is building a plant in Hungary while other Chinese carmakers are expanding in Europe through joint ventures.