Munich Auto Show: Europe battles tariffs and chinese surge with cheaper EVs

Car buyers could soon see cheaper electric vehicles (EVs) and fresh models as Europe’s biggest automakers fight back against Chinese rivals at the Munich car show this week.

Volkswagen, BMW and Mercedes-Benz led a parade of launches on Monday, rolling out new EVs and lower-cost models. Executives said they had little choice as Europe’s auto industry battles U.S. tariffs, costly electrification and shrinking market share in China, once its largest growth engine.

“We have many crises at the same time,” Volkswagen CEO Oliver Blume told Reuters. “China is difficult, tariffs are costing us billions, and restructuring is expensive.” He said U.S. tariffs alone were wiping “several billion euros” from the company’s balance sheet this year.

The IAA Mobility show, running until Friday, comes at a turning point. European carmakers have long trailed Chinese brands in affordable EVs. According to JATO Dynamics, Chinese firms nearly doubled their European market share to 4.8% through July, compared with the same period in 2024. Consultancy McKinsey estimates their share could climb to 14% within a decade, equal to Japan’s footprint today.

China challenge meets EU policy wall

For Europe’s automakers, the double blow is sharp. China’s market is slipping fast. Porsche’s sales there fell 28% in the first half, forcing the luxury brand out of Germany’s benchmark DAX index later this month. Meanwhile, executives are pressing Brussels to rethink its 2035 ban on combustion engines, warning the rule is now impossible to meet.

BMW CEO Oliver Zipse called the ban a “big mistake,” arguing for broader rules covering emissions across supply chains. Jean-Philippe Imparato, head of Stellantis’ European brands, said: “No carmaker can meet the 2035 targets as they stand.” Stellantis confirmed it will not limit production to EVs alone.

But critics warn lobbying may backfire. “They should put their energy into building the best, cheapest cars to out-compete the Chinese,” said Danijel Visevic, managing partner at climate-tech venture firm World Fund.

Affordable EVs take the stage

Several firms are racing to launch EVs priced under €25,000, a crucial threshold for wider adoption in Europe. China’s Leapmotor unveiled the B05 hatchback, due in Europe in 2026. CEO Zhu Jiangming described it as a sporty coupe, available in six colours including Lightning Yellow and Morgan Pink.

Turkey’s EV startup Togg revealed the T10X SUV and T10F sedan, with German sales to begin in September. Volkswagen and other European brands also lined up smaller EVs, aiming to close the affordability gap.

Tu Le, founder of Sino Auto Insights, said European firms had “learned their lesson” after failing to match Chinese launches two years ago. “They are absolutely taking the Chinese seriously now,” he told Reuters.

Tariffs tighten the squeeze

Even with new products, tariffs are biting. A U.S.-EU trade deal could still leave European exports facing 15% duties, making many smaller models unprofitable. Porsche, which has long targeted 20% margins, is unlikely to reach that goal, Blume admitted.

Analysts warn the fight is just beginning. AlixPartners forecasts global automakers’ China market share could sink from 62% in 2020 to 28% by 2030. “The Chinese are here to stay,” said Phil Dunne of consultancy Stax.

For European drivers, the immediate impact may be brighter; more choices, lower prices, and a push for faster innovation but for Europe’s automakers, survival is now on the line.

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