How the EU's Industry Accelerator Act could reshape EV manufacturing in Europe
Brussels' draft Industry Accelerator Act sets new rules on where EVs sold in the EU must be made, even as Chinese manufacturers post record European sales
The key issues affecting the Chinese manufacturers in Europe are the supplementary tariffs on Chinese-made EVs introduced in 2024 and the recently announced Industry Accelerator Act (also known as the Made in Europe/EU policy) which is designed to boost manufacturing inside the EU.
Taking the tariffs approach
Supplementary tariffs on Chinese EVs were introduced in response to the European Commission (EC) concluding that Chinese EV manufacturers had benefited from unfair subsidies, in the form of preferential loans, and reduced prices for land and other factors of production. The supplementary tariffs (which were applied on top of the standard 10% tariff on EU vehicle imports) ranged from 7.8% on Tesla to 35.3% on SAIC and other companies which were deemed not to have co-operated with the EC’s investigations.
While several manufacturers adjusted their prices in the immediate term and showed they were prepared to absorb some of the increased tariffs, the Chinese have accelerated plans to expand in Europe. Until these new operations are up and running the Chinese have to absorb the extra tariffs. So far however these have not seriously impacted the Chinese vehicle companies’ ability to sell in Europe, with BYD having seen its H1/2026 EU registrations more than double to c173,000; similarly, Chery has seen a four-fold rise in H1/2026 over H1/2025 to nearly 170,000, while Leapmotor, admittedly from a very low base from 2025, saw its H1/2026 volumes rise by almost seven times to nearly 56, more than treble, with its Stellantis association likely to boost growth in the next few years.
The pressure on the Chinese vehicles companies – and indeed any manufacturers outside the EU (including those in the UK and Turkey) – has increased with the announcement of the Industry Accelerator Act (IAA). If implemented as set out in the draft version of the Act, this would mean that EVs made outside the EU would not be eligible for government support schemes, i.e. sales subsidies, nor could they be included in fleet operators’ calculations for compliance with Net Zero and related environmental measures.
Compliance challenges
In addition, the batteries and core battery components used in EVs made inside the EU would need to be sourced from within the EU to qualify for the above benefits. EVs from outside EU, or using batteries from outside the EU, would not be barred from sale inside the EU, but they could not benefit from government support schemes. These rules would not directly break existing free trade agreements, but they would make it difficult for EVs made in the UK and other locations outside the EU to maintain current EU sales levels. The lack of development in the battery supply chain, especially in the local production of cathodes and anodes, is a major practical and logistical challenge to vehicle companies wanting to source batteries from within the EU which would comply with the IAA rules.
The focus on production inside the EU has led to the UK – and Turkey, Korea and Japan – to ask the EU to treat them as equivalent to the EU in terms of EV production and content. This has found support from some European vehicle companies but not all; the German premium brands do not like the EU proposals, but Renault, Stellantis and Volkswagen are broadly supportive of the scheme. Political leaders and trade bodies such as ACEA were initially ambivalent but there is a feeling in the industry and amidst trade and political analysts that there will be some form of accommodation so that EVs made in the UK, Turkey and indeed Korea and Japan will receive some form of “equivalence” recognition.
Simplifying IAA rules
In a related move, Volkswagen, Stellantis and Renault have written to the European Parliament calling for simple rules for the IAA. They propose that 70% of the vehicles sold in the EU should source 70% of their value from within the EU’s 27 countries. Moreover, this would seem to suggest that “if 70% of a manufacturer’s fleet meet this requirement and qualifies as ‘Made in Europe’, the entire fleet is automatically considered ‘Made in Europe’.” This proposal implies that vehicles made by Stellantis or Renault in Morocco, or Volkswagen in South Africa or Mexico, would be covered under the proposal. However, for the likes of Toyota, Nissan, other Japanese companies and Jaguar Land Rover, the implications and consequences are less positive.
The proposal does not set out how compliance would be monitored, nor the penalties for non-compliance. While simple rules could be sensible, the proposals lack detail at this stage. Members of the European Parliament may worry more about principles than details, leaving those to officials in the EC. Meanwhile, the Chinese are accelerating their investment plans for the EU and clearly plan to get around any such restrictions, although their local component sourcing would need to be at least 60%, as proving much more than 10% of the engineering value is attributable to Europe will surely be a challenge.
Potential to intensify local competition
EU industrial policy has already begun to reshape the automotive industry’s geography as the European investment plans by BYD, MG, Geely and others from China make clear. The EU’s IAA/MIE plans are designed to protect EU industry and might achieve that goal. However, they will also attract more investment from China into the EU, and this could actually undermine one of the industries the policy is designed to protect by intensifying local competition.
There also remain several questions to be answered, notably what will happen with Xpeng, Changan and Great Wall which have also been mentioned as planning either their own European plants or expressing a wish to take over an existing plant. Supply chain issues, especially for batteries remain to be addressed, and there is also the intriguing possibility of Chinese suppliers following the vehicle companies to Europe, just like Japanese and Korean suppliers have done in earlier years; that story is, however, for another day.
