. Europe, however, looks particularly exposed. U.S. carmakers benefit from drivers’ love of larger cars, and government subsidies for domestic production under President Joe Biden’s Inflation Reduction Act. With European manufacturing under threat, the continent could try to deter imports with extra tariffs, or more subsidies for local players.
Yet governments themselves are in a bind. If Europe wants to phase out combustion engine vehicles by 2035, it will need a large supply of cheaper electric vehicles. At JATO’s estimate of 56,000 euros, the average price of an electric vehicle in Europe is still too high for most punters. Moreover, a trade war would be unpredictable. The lower cost of manufacturing in China may help Chinese carmakers absorb tariffs, while western groups could suffer from reprisals. The country accounted for nearly 40% of Volkswagen’s deliveries in 2022, for example. Groups like RenaultThe result may be that western groups have to jostle for a smaller place in their home markets but also cut prices, hurting profitability.
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