(Bloomberg) -- The European Union needs more and cheaper electric vehicles. Brussels’ decision to impose new tariffs on Chinese-made models will keep prices higher for longer, and act as a deterrent to sales.

The bloc waded into a messy battle over global EV trade on Wednesday, announcing that it will hike tariffs to as high as 48% on vehicles imported from China. In messaging that chimed with the case Washington has been making for months, the European Commission vowed to protect a mainstay industry from what it said were illegal subsidies.  

Reactions were swift: this is unhelpful for getting down high EV prices, and may hurt rather than help homegrown companies like Volkswagen AG and Renault SA, as China threatens to retaliate. 

“Shielding automakers from competition and stopping consumers from accessing affordable EVs today is not going to help them meet their climate goals, nor will it help their domestic industries,” Aleksandra O’Donovan, who leads BloombergNEF’s Electrified Transport research team, said in an interview. “At the moment, it feels as though the decarbonization targets might not be the priority.”

Europe’s ambitious green goals to phase out sales of new gas guzzlers by 2035 were already under strain. After phenomenal growth, EVs remain too expensive for average consumers from Berlin to Bulgaria. Chinese companies led by BYD Co. and MG maker SAIC Motor Corp. have been gearing up cheaper imports, but with the new levies, prices are set to remain out of reach longer for many potential buyers.

In its annual Electric Vehicle Outlook published Wednesday, BloombergNEF cut its global EV sales projections by 6.7 million vehicles through 2026, seeing a much slower ramp-up than forecast only a year ago. A few Nordic countries and the state of California are the lone places on pace to eliminate passenger vehicle fleet emissions by 2050, BNEF said.

The EU’s tariffs will likely cut imports from China by a quarter, or roughly $4 billion worth of cars, according to Germany’s Kiel Institute for the World Economy. 

SAIC stands to be hit the hardest, after the EU deemed the state-run company uncooperative with its probe. The manufacturer started shipping electric MGs into Europe about five years ago and has gained more traction than Chinese brands with cars like the relatively affordable MG4 sedan at €34,990 ($37,960). 

BYD’s push to sell its low-cost Seagull city car in Europe as soon as late 2025 for less than €20,000 may now be at risk as well.

The impact isn’t limited to Chinese carmakers. While almost one-fifth of fully electric vehicles sold in the EU last year were made in China, shipments are dominated by Tesla Inc., which imports Model 3 sedans from Shanghai. The share is set to rise to 25% this year, according to lobby group Transport & Environment, with BMW, Volvo Car and Renault also shipping significant numbers of vehicles. 

These carmakers will also have to pay up, with those cooperating with the investigation set for a 21% additional levy that takes effect July 4. Tesla and potentially others could see an adjustment based on individual factors.

“This decision for additional import duties is the wrong way to go,” BMW Chief Executive Officer Oliver Zipse said in a statement. “Protectionism risks starting a spiral: tariffs lead to new tariffs, to isolation rather than cooperation.”

China has threatened retaliation across agriculture, aviation and cars with large engines, saying it’s deeply disappointed and firmly opposed to the measures on EVs. 

Beijing will nevertheless likely be careful to maintain access to the European market as a lucrative destination for exports. At home, EV makers like Nio Inc. and Xpeng Inc. are struggling with losses amid significant overcapacity. 

“Today’s announcement is more likely to accelerate the extent to which Chinese OEMs and suppliers manufacture their products within Europe –- something that we have already started to see,” said Andrew Bergbaum, global co-head of the automotive practice at consulting firm AlixPartners. 

Growth Options

Shares of Chinese manufacturers rose on Thursday after investors concluded that the carmakers have several options to keep growing. 

Shifting production to Europe will help carmakers recoup some of the lost sales, new markets in the Middle East, Latin America and Southeast Asia could also absorb more EVs as demand grows from a small base. 

BYD shares jumped as much as 8.8% in Hong Kong trading Thursday, leading gains among Chinese EV makers. 

The EU has made the levies provisional for now, signaling it could adjust course before a Nov. 4 deadline, should further talks produce a negotiated settlement. The bloc’s slide to the political right following this past weekend’s parliamentary elections could also alter the course of events. 

“There is now an opportunity to try and hopefully succeed in stopping this spiral that is threatening,” Germany’s Economy Minister Robert Habeck said. “If we enter into a tariff race with China, then the baby would be thrown out with the bathwater.”

--With assistance from Petra Sorge and Jorge Valero.

(Updates with stock reaction of Chinese OEMs from 16th paragraph)

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