How Chinese automakers are going global while avoiding tariffs

In October 2024, European Union (EU) member states approved additional tariffs on Chinese-made electric vehicles (EVs), citing concerns over unfair state subsidies and market distortions. These tariffs marked a significant escalation in trade tensions between China and Europe and posed a direct challenge to the export-led growth model that had underpinned China’s EV industry. Rather than retreating, Chinese automotive firms have accelerated a strategic reversal in their globalization approach, that is, shifting from direct exports to overseas acquisitions, local manufacturing, and brand portfolio expansion.

Why are Chinese automakers looking to Europe?

China’s automotive market is saturated

China has been the world’s largest automotive market since 2009, but growth has increasingly plateaued. According to a report by Car News China (2025), there are 359 million New Energy Vehicles (NEVs) on the road in China, as of June 2025. While 2025 has been a promising year for NEV sales, the export market is growing faster than local markets, and accounted for 15% of all NEV sales in H1 2025.

While data is promising, vehicle penetration rates are mainly focused on urban areas. It is also tough for local NEV companies as competition is intense, driven by price wars, that obviously compressed margins significantly. Domestic champions such as BYD, Geely, SAIC, and Great Wall face fierce rivalry not only from each other but also from technology-driven entrants, such as Xiaomi, Xpeng and NIO. As a result, relying solely on domestic demand is no longer sufficient to sustain scale, profitability, and innovation momentum.

“出海” (Going Global) as a strategic imperative

Against this backdrop, the Chinese government and leading firms have embraced the concept of “出海” (“Going Global”). Unlike earlier waves of Chinese outward investment that focused on resources or low-cost manufacturing, this new phase is technologically driven and brand-oriented. EVs, batteries, and software-defined vehicles are areas where Chinese firms possess comparative advantages. However, direct exports of finished vehicles—particularly to Europe—have become politically sensitive and economically costly due to tariffs. This has pushed firms to rethink not whether to globalize, but how.

The European Imperative in the 1980’s

Volkswagen (VW) was the first European automotive company to enter the Chinese market in the early 1980s, followed shortly by Peugeot. VW’s entry was facilitated through joint ventures (JVs) with state-owned enterprises—initially SAIC in Shanghai and later FAW in Changchun. These partnerships were not optional; they were mandated by Chinese industrial policy, which sought technology transfer and local capability building. This strategy has often been summarized as “In China, for China.”

From an international business perspective, VW’s expansion into China represented both a market-seeking and an efficiency-seeking foreign direct investment. The primary objective was access to a vast and fast-growing domestic market, but localization also allowed VW to reduce production costs, avoid import tariffs, and benefit from economies of scale. Juan Alcacer’s DDD framework helps explain the success of this approach. VW initially deployed existing capabilities into China, developed new local competencies through partnerships and learning, and eventually deepened its presence by expanding production capacity and product offerings. This staged approach lowered costs relative to exporting and embedded VW deeply within China’s automotive ecosystem.

China Going Global via acquisitions: a fundamentally different globalization logic

Chinese automakers are now reversing this historical pattern. Instead of exporting vehicles from China or building greenfield factories abroad from scratch, firms such as Geely and Great Wall are acquiring established foreign brands and their assets. This approach allows them to sidestep tariffs, overcome liability of foreignness, and gain instant legitimacy in mature markets.

Geely as a Case Study in Strategic Acquisitions

Geely’s acquisition strategy is emblematic of this reversal:

• Volvo Cars (2010)
• Polestar (2017, via Volvo)
• Lotus (2017)
• Proton (2017)
• Stake in Daimler AG (2018)
• Smart (2020, JV with Mercedes-Benz)
• Stake in Aston Martin (2022)

Rather than diluting these brands under a single Chinese identity, Geely has preserved their autonomy while integrating them into a shared technology and platform ecosystem.

Two-Pronged Strategic Rationale

The acquisition strategy serves two interrelated objectives:

• Brand and technology leverage. Instead of building premium brands from scratch—a process that can take decades—Chinese firms acquire marques with established reputations, loyal customer bases, and pricing power. EV and battery expertise developed in China can then be embedded into these brands, accelerating their electrification while upgrading their technological competitiveness.
• Capability and regulatory embeddedness. Acquired firms come with existing manufacturing facilities, design centers, supplier networks, and crucially, deep familiarity with local regulatory frameworks. Vehicles produced in Sweden, the UK, or Malaysia are no longer “Chinese imports” in the eyes of trade regulators, effectively neutralizing tariffs.

EU tariffs are typically applied based on country of origin. By manufacturing vehicles within Europe or other host markets, Chinese automakers can classify output as local production. This mirrors the earlier strategy of Western firms in China but reverses the direction of knowledge flow.

However, unlike earlier European entrants, Chinese firms are not primarily localizing to reduce labour costs. Instead, they are “exporting innovation”, particularly in EV architectures, battery chemistry, and digital integration; while embedding it within globally recognized brands.

Traditional latecomer theories suggest that firms from emerging markets must first compete on cost, then gradually move up the value chain. Chinese EV firms disrupt this narrative. Their strength lies in system-level innovation rather than incremental efficiency gains. Battery supply chains, vertical integration, and software capabilities provide an edge that even established incumbents struggle to match.

This helps explain why China’s “Going Global” push is occurring at a moment when many global competitors, especially European and American automakers, are under pressure from electrification costs, regulatory uncertainty, and past strategic missteps. Toyota remains a notable exception due to its disciplined global production system and long-term technological bets.

The strategic reversal in Going Global

Chinese automakers’ approach to strategic reversal represents a profound shift in global automotive competition. Rather than following the traditional path of exporting low-cost vehicles or building brands organically, firms such as Geely are leveraging acquisitions to globalize rapidly, avoid tariffs, and gain legitimacy in mature markets.

This strategy is fundamentally driven by China’s existing know-how in EV and battery technologies. Instead of localizing cost, Chinese firms are localizing presence while exporting innovation. In doing so, they invert the logic of earlier Western FDI into China and challenge long-held assumptions about how latecomer firms internationalize.

As trade barriers rise and the automotive industry undergoes its most significant transformation in a century, China’s strategic reversal may prove to be not only adaptive—but structurally disruptive to the global order of the industry.