Why China won the electric-vehicle race—and why Europe cannot simply copy it

I have written extensively about industrial policy in recent months. Regular readers will know the broader argument: in what I have called the geoeconomic decade, economic policy and international cooperation are increasingly being reorganised around economic security, strategic industries and more resilient supply chains. Governments are no longer concerned primarily with efficiency and growth. They are focusing on where essential products are manufactured, who controls critical technologies and whether economic dependencies could become political vulnerabilities.

This shift is likely to produce new forms of economic-security alliances and has already led to a much more active use of industrial policy. But it also carries a considerable risk. If every country or economic bloc attempts to localise the same strategic industries, exclude foreign suppliers and reduce dependencies unilaterally, the result may be economic fragmentation, costly duplication and an ultimately lose-lose game.

This general diagnosis is important, but it is not sufficient for devising the right policy responses.

To develop useful recommendations, policymakers need to move beyond broad calls for “more industrial policy” or “greater economic sovereignty”. They need to understand which policy instruments have worked, which have failed and under which conditions. They also need to recognise that vertical industrial policies cannot be designed in the same way across all sectors. Semiconductor manufacturing, battery production and aerospace may all be considered strategic industries, but their value chains, capital requirements, innovation cycles, market structures and dependencies differ fundamentally.

Industrial policy therefore requires detailed knowledge of the industry it seeks to shape.

In an earlier article, I briefly compared industrial-policy approaches in semiconductors, batteries and aerospace. That comparison showed that there is no universal industrial-policy formula. The effectiveness of subsidies, public procurement, trade protection, research funding or production incentives depends on the characteristics of the respective value chain and on how the different instruments are combined.

This article now takes a deeper look at electric mobility.

Electric mobility is one of the most revealing cases through which to analyse contemporary industrial policy. Both China and the European Union—particularly Germany—have invested considerable political and financial resources in the sector over the past two decades. Both sought to accelerate the transition away from combustion engines, support technological innovation and strengthen their industrial positions.

Yet the results have been markedly different.

Europe became a major market for electric vehicles and remains the world’s second-largest electric-car producer. It did not simply “miss” the transition. In 2025, the European Union produced almost 3.2 million electric cars and remained a net exporter.

Nevertheless, China produced approximately 16 million electric cars in the same year. It accounted for around 70 per cent of global electric-car production, more than 80 per cent of battery-cell production, approximately 85 per cent of cathode active-material production and more than 90 per cent of anode active-material production.[1]

Therefore, this article looks into how their approaches differed: which instruments they used, how they combined demand and production support, how they approached scaling and localisation, and how they connected vehicle manufacturing with the wider battery and raw-material ecosystem.

Understanding these differences provides a concrete basis for discussing what effective industrial policy requires—and why Europe cannot simply copy the Chinese model, even where particular Chinese instruments proved successful.

Europe approach to industrial policy for electric mobility

The often-repeated claim that Europe relied entirely on markets while China implemented industrial policy is incorrect.

Germany launched its National Platform for Electric Mobility in 2010 with the stated ambition of becoming both a leading market and a leading supplier of electric-mobility technologies. The European Union subsequently adopted a wide range of measures intended to accelerate vehicle electrification, support technological development and develop a European battery industry.

These measures can be grouped into six principal categories.

Demand-side subsidies

Germany’s Umweltbonus reduced the purchase price of electric vehicles. Electric company cars received favourable tax treatment. Other European countries introduced grants, registration-tax reductions, vehicle-tax exemptions and leasing incentives.

These instruments helped create a market at a time when electric vehicles remained significantly more expensive than combustion-engine vehicles. They lowered the risk faced by manufacturers and encouraged consumers to adopt an unfamiliar technology.

It contributed to a substantial increase in electric-vehicle registrations and helped move electric mobility from a niche market into the mainstream.

But the programme was principally a climate and market-adoption instrument. Eligibility depended on the characteristics and price of the vehicle, not on where it, its battery or its critical components had been produced.

A German consumer could therefore use a German subsidy to purchase a vehicle assembled outside Europe and equipped with an imported battery. The policy increased European demand for electric mobility, but it did not ensure that the additional demand would translate into European industrial capacity.

Charging infrastructure

Germany and the European Union also invested heavily in charging networks. Successive funding programmes supported private chargers, municipal infrastructure, company charging and publicly accessible stations.

The Deutschlandnetz, for example, is designed to add more than 1,000 fast-charging locations with approximately 9,000 charging points. European legislation has complemented these investments by setting requirements for charging infrastructure along major transport corridors.[2]

This was an essential component of the transition. Consumers will not purchase electric cars if they cannot charge them reliably.

Nevertheless, infrastructure policy primarily supports the use of electric vehicles. Unless it is connected to production and sourcing conditions, it does not determine who manufactures the vehicles, batteries or charging equipment.

Regulation

European regulation has arguably been one of the strongest parts of the continent’s electric-mobility policy.

Fleet-wide carbon-dioxide standards forced vehicle manufacturers to reduce emissions. The EU established progressively stricter targets for cars and vans, culminating in the legal objective of a 100 per cent reduction in tailpipe emissions for new cars and vans from 2035.

These measures gave manufacturers a relatively clear indication that the European market would move towards electrification. They created a regulatory market for electric vehicles even when consumers remained uncertain.

But regulation establishes what companies must sell. It does not necessarily establish where they produce it.

A European manufacturer can comply with emissions targets using imported battery cells. A vehicle produced outside Europe can comply with European environmental standards. Regulation can accelerate technological change without securing the location of the resulting value creation.

Research and innovation

Germany and the European Union financed extensive research into batteries, power electronics, charging systems, manufacturing processes, recycling and digital mobility.

European universities and research institutes remained strong in electrochemistry and advanced manufacturing. Horizon programmes, national research funding and collaborative industrial projects sought to move these capabilities towards commercial application.

This support was valuable, but Europe frequently concentrated on the research and demonstration stages of innovation. The more difficult transition from a successful technology to high-volume, cost-competitive manufacturing received less systematic attention.

Industrial leadership is not determined solely in the laboratory. It also emerges on factory floors through production experience, process optimisation, supplier learning and repeated cost reductions. A company may possess excellent technology and still lose if its competitors manufacture at several times its scale.

Battery alliances and production support

Europe did eventually recognise that batteries were not simply another vehicle component.

The European Battery Alliance was created in 2017. Two Important Projects of Common European Interest subsequently allowed participating governments to support battery investments beyond normal state-aid limits.

The first battery IPCEI, approved in 2019, permitted €3.2 billion in public support and was expected to mobilise an additional €5 billion in private investment. A second project, approved in 2021, permitted €2.9 billion in public support and was expected to generate around €9 billion in private investment. Together, the projects covered activities ranging from raw-material processing and battery materials to cells, packs, applications and recycling.[3]

This was clearly vertical industrial policy.

However, the IPCEI model was structured primarily around research, innovation and “first industrial deployment”. It was less suited to supporting the long and expensive period during which manufacturers must increase output, improve yields, reduce unit costs and survive global price competition.

The projects also had to be negotiated among participating governments, assessed under state-aid rules and divided between numerous firms and countries. Europe built a portfolio of significant projects, but not a single, rapidly executed programme for reaching globally competitive manufacturing scale.

China used a different combination of instruments

China also supported consumer demand, research and charging infrastructure. The difference was that it combined the tools around a more explicit objective: the creation of Chinese producers across the electric-mobility value chain.

Long-term strategic direction

Electric mobility was incorporated into Chinese national industrial planning long before the technology had become commercially dominant. The sector appeared in industrial-development plans, science and technology programmes, municipal pilots and subsequent five-year plans.

The 2012–2020 Energy-Saving and New Energy Vehicle Industry Development Plan was followed by the New Energy Vehicle Industry Development Plan for 2021–2035. The latter identified batteries, motors, operating systems, charging infrastructure, recycling and the integration of vehicles with energy and digital systems as interconnected priorities.[4]

This provided more than a target for vehicle sales. It communicated that the state intended to develop a complete industrial ecosystem over a period measured in decades.

Demand creation

China introduced large consumer-purchase subsidies and exempted new-energy vehicles from the vehicle-purchase tax. Although direct national purchase subsidies were progressively reduced, tax advantages were extended repeatedly. Vehicles purchased in 2024 and 2025 remained eligible for purchase-tax exemptions, while reduced benefits continue in 2026 and 2027.[5]

Local governments added further incentives. Major cities limited the availability of licence plates for combustion-engine vehicles while making them easier or cheaper to obtain for electric vehicles. Public authorities purchased electric buses, taxis and municipal fleets. Pilot programmes concentrated demand in selected cities.

These policies created a large early market and guaranteed initial customers for manufacturers.

But unlike European demand support, Chinese subsidies were more closely connected to domestic industrial development.

Production finance and industrial capacity

Electric-vehicle and battery producers benefited from direct grants, tax advantages, concessional loans, state-backed investment, discounted land, industrial parks and support from provincial and municipal governments.

State-owned banks and local investment vehicles helped finance factories that private capital might have considered too risky. Local governments competed to attract manufacturers and suppliers, frequently providing infrastructure and finance alongside traditional investment incentives.

This support did not stop when a prototype had been developed. It extended into factory construction, production expansion and commercial scaling.

The state therefore assumed part of the risk associated with manufacturing before demand, technologies and business models had fully stabilised.

Estimates of the total value of Chinese support differ because provincial subsidies, cheap credit, land provision and other indirect instruments are difficult to measure. One widely cited estimate places cumulative support for the Chinese electric-vehicle sector between 2009 and 2023 at more than $230 billion. The precise number is debatable, but the scale and breadth of intervention are not.[6]

Localisation and infant-industry protection

One of China’s most consequential interventions was the approved battery-supplier catalogue commonly described as the battery “whitelist”.

Between 2016 and 2019, access to important electric-vehicle subsidies was effectively restricted to vehicles using batteries supplied by approved manufacturers. The approved companies were Chinese. Leading Korean and Japanese battery producers operating in China were excluded.

The result was a protected market in which Chinese battery companies could accumulate orders, expand production, improve their technology and reduce costs without initially confronting the strongest foreign competitors on equal terms.

Companies such as CATL and BYD gained an opportunity to learn at scale within the world’s largest electric-vehicle market. By the time the restrictions were removed, the leading Chinese companies were no longer fragile infant industries. They had become formidable global competitors.

Europe never provided its battery producers with a comparable protected scaling period.

Production mandates

China’s dual-credit system complemented subsidies with direct obligations on manufacturers.

Vehicle producers were assessed both on the average fuel consumption of their fleets and on their production of new-energy vehicles. Companies generating insufficient credits had to acquire them from other producers or adjust their production.

This transformed electric-vehicle production from an optional experiment into a strategic necessity. Manufacturers could not simply continue relying on combustion-engine profits while postponing the transition indefinitely.

The system also created a market reward for firms specialising in electric vehicles because they could sell excess credits to traditional manufacturers.

Value-chain coordination

China did not approach the electric vehicle as a self-contained final product.

Industrial policy extended into lithium, graphite and cobalt processing; cathode and anode materials; battery cells an battery-management systems.

Mining receives considerable political attention, but the largest industrial value is not necessarily created where a mineral is extracted. Processing it into battery-grade material, producing cathodes and anodes, manufacturing cells and integrating those cells into vehicles involve substantial technology, capital and manufacturing knowledge.

China systematically developed these intermediate stages. It combined overseas access to minerals with domestic processing capacity and a dense network of component manufacturers.

As production volumes increased, suppliers could specialise. Equipment manufacturers improved their machinery. Engineers moved between firms. Producers learned from defects and process failures. Logistics became more efficient.

This is the cumulative advantage of an industrial cluster. Once it reaches sufficient scale, every additional investment becomes easier and cheaper because it builds upon an existing ecosystem.

Competition and experimentation

China’s model is sometimes described as centralised. That is misleading.

The central government established the strategic direction, but provincial governments, cities, state-owned companies and private firms experimented with different technologies and business models. Local governments competed for investment. Hundreds of vehicle and battery companies entered the market.

This produced waste. It generated subsidy fraud, redundant factories, failed companies and significant overcapacity.

But it also created intense domestic competition. Government support was not reserved for one permanently protected national champion.

The reduction of consumer subsidies increased this pressure. Producers that had relied mainly on public support had to lower costs or leave the market. Successful firms emerged from a large and often brutal process of experimentation and selection.

China combined protection from foreign competition during critical phases with fierce competition among domestic producers.

That combination is different from simply subsidising incumbent firms.

Why did China’s approach produce stronger industrial results?

The difference cannot be reduced to the statement that China spent more money. Spending mattered, but the structure and sequencing of the intervention mattered at least as much.

Europe created an electric-vehicle market. China created electric-vehicle producers.

European policy was initially dominated by climate objectives. It sought to reduce emissions by encouraging consumers to purchase cleaner vehicles and requiring manufacturers to meet progressively stricter standards.

Chinese policy also pursued adoption, but it connected demand creation to the development of domestic production.

This is the first lesson of the comparison: a market-creation policy is not automatically a production policy.

A subsidy can increase sales without creating a domestic industry. Regulation can change the products placed on a market without changing the location of production. Infrastructure can accelerate adoption while benefiting foreign manufacturers.

When governments pursue industrial objectives, they must specify not only what should be consumed but which capabilities should be developed.

Europe supported projects. China supported an ecosystem.

European industrial policy frequently operates through individual calls for proposals, research programmes and investment projects. Each intervention may be defensible, but the combined portfolio does not necessarily create a complete value chain.

China treated the vehicle, battery, materials, infrastructure, finance and export system as interdependent.

A battery factory without affordable cathode materials will struggle. A vehicle manufacturer without a local supplier base faces higher costs and longer development cycles. A mineral partnership without processing capacity creates relatively little industrial value.

Industrial policy must therefore be designed around systems rather than isolated projects.

Europe prioritised innovation and demand. China prioritised innovation, production and demand.

Europe possesses significant research and engineering capabilities. But laboratory knowledge is not equivalent to manufacturing capability.

Production at scale generates a distinct form of knowledge. Firms learn to improve yields, reduce material use, accelerate assembly, manage quality and redesign products for manufacturability. These improvements emerge from repetition.

China’s large domestic market, production subsidies and protected scaling period gave its firms the opportunity to move rapidly down the learning curve.

Europe often funded the development of new technologies while assuming that private markets would finance their subsequent scale-up. This assumption underestimated both the capital intensity of battery manufacturing and the strategic importance of production experience.

Industrial policy must cover the difficult space between invention and globally competitive production.

European support was open. Chinese support was conditional.

Germany’s purchase subsidy was largely neutral regarding the geographical origin of a vehicle or battery. China’s support during key phases was linked closely to approved domestic suppliers.

From a competition and consumer perspective, Europe’s approach was less discriminatory. From the perspective of industrial development, however, it weakened the connection between public expenditure and domestic capability formation.

This does not mean that every subsidy should contain rigid local-content requirements. It means that governments must consider who ultimately captures the value generated by public demand.

Europe intervened late in strategic parts of the value chain.

Europe had a highly developed automotive industry, but this created its own form of inertia.

European manufacturers possessed valuable combustion-engine technologies, profitable premium brands and established supplier networks. They had strong incentives to extend the life of existing assets, rely on hybrid solutions and delay the full reallocation of capital.

China possessed a less competitive combustion-engine industry. Electrification offered an opportunity to bypass the technological advantages of European, Japanese and American manufacturers.

China therefore treated electric mobility as a route to industrial leapfrogging. Europe initially treated it as a technological transition within an existing industry.

China was prepared to disrupt the prevailing automotive structure. Europe tried to transform it without destabilising it.

China combined strategic consistency with decentralised experimentation.

European industrial policy is divided among EU institutions, national ministries, regional governments and numerous funding organisations. Climate policy, competition policy, research policy, trade policy and infrastructure policy frequently follow different procedures and timelines.

The European Union also lacks a central fiscal capacity comparable to that of a state. When state-aid rules are relaxed, countries with greater fiscal resources can support their industries more heavily than smaller member states. This risks fragmenting the Single Market rather than creating a genuinely European industrial strategy.

China’s system is also institutionally complex, but its different levels of government generally operated within a common strategic direction. Local experimentation took place within national priorities.

China accepted a higher level of policy failure.

European funding programmes are designed to avoid waste, favouritism and market distortion. These are legitimate objectives. But the result can be slow procedures, fragmented support and extreme caution toward uncertain investments.

China tolerated considerable duplication and failure. Many subsidised firms disappeared. Some local investments were wasteful. Excess capacity now creates serious economic and trade problems.

Nevertheless, the willingness to finance a portfolio of uncertain firms and technologies increased the probability that a small number would achieve global scale.

Effective industrial policy requires accountability, but it cannot eliminate risk. A policy that funds only projects already considered commercially safe is unlikely to create new industries.

The lessons for implementing industrial policy

The comparison suggests several principles that extend beyond electric mobility.

First, industrial policy must begin with a precise definition of the capability being pursued. “Promoting electric mobility” is not sufficiently specific. A government must determine whether it seeks lower transport emissions, domestic vehicle assembly, battery-cell production, control over battery materials, technological knowledge, secure access to inputs or some combination of these objectives.

Second, demand and supply instruments must be designed together. Consumer subsidies, regulation and public procurement create markets. Production finance, infrastructure, skills and technology support enable firms to serve those markets. Neither side is sufficient alone.

Third, industrial policy must follow complete value chains. Policymakers need to identify critical inputs, missing suppliers, technological bottlenecks, scale requirements and dependencies. Supporting a flagship factory will not work if complementary parts of the ecosystem remain absent.

Fourth, scale-up deserves as much attention as research. Public policy needs instruments for first-of-a-kind factories, production expansion, working capital, yield improvement and temporary operating-cost disadvantages. These instruments should be linked to measurable milestones rather than provided indefinitely.

Fifth, support should be patient but not unconditional. Firms need predictable policy over investment cycles that often last a decade. At the same time, subsidies should decline as technologies mature. Governments should use performance targets, repayment clauses, competitive tenders and clear exit conditions.

Sixth, industrial policy should encourage competition. Supporting several firms and technological pathways is generally safer than selecting a single permanent champion. Protection from foreign competitors should not become protection from domestic competition.

Seventh, implementation capacity is itself an industrial-policy instrument. Permitting, grid connections, procurement, financing and regulatory decisions must move at the speed of industrial investment. A generous programme that takes years to approve may be less effective than a smaller but predictable and rapidly accessible instrument.

Finally, the territorial scale of the policy must correspond to the scale of the market. For Europe, national subsidy programmes are insufficient and potentially divisive. A continental industrial policy requires European financing, common priorities and instruments that prevent competition among member states from undermining the Single Market.

Europe’s Late Turn Towards Protection and Localisation

The comparison with China has now changed the European policy debate. For many years, Europe relied mainly on climate regulation, consumer incentives, research funding and relatively open markets. It supported the transition to electric mobility, but placed fewer conditions on where the resulting vehicles, batteries and components should be produced.

This approach has become increasingly difficult to sustain. Chinese manufacturers have achieved substantial cost advantages, while Chinese companies dominate important parts of the battery value chain. At the same time, the United States had already shifted towards a more explicitly protectionist model with the Inflation Reduction Act of 2022. Access to major US electric-vehicle incentives was tied to final assembly in North America and to progressively stricter sourcing requirements for batteries and critical minerals. These measures were reinforced by trade barriers and restrictions targeting Chinese suppliers.

Europe is now moving in the same direction. Following its anti-subsidy investigation, the European Commission imposed definitive countervailing duties on Chinese battery-electric vehicles. The additional rates include 17 per cent for BYD, 18.8 per cent for Geely and 35.3 per cent for SAIC, with differentiated rates for other producers.[7]

The proposed Industrial Accelerator Act of March 2026 goes further. It would introduce “Made in the EU” requirements for selected forms of public procurement and financial support. For vehicles covered by the proposal, these would include final assembly in the European Union, a 70 per cent EU-origin threshold for non-battery components and additional requirements covering battery cells, cathode materials, battery-management systems, powertrain components and electronic systems.[8]

This shift is understandable. The European experience shows that public support for demand does not automatically create European production. If subsidies, procurement and regulation remain entirely neutral regarding the location of production, a significant share of the value generated by European policy can accrue to companies and supply chains outside Europe. Trade defence and localisation requirements are therefore legitimate elements of a more serious industrial strategy.

But the timing and the wider strategic context matter. China used protection and localisation while its domestic industry was still developing. Europe is introducing similar measures after Chinese firms have already reached global scale and after electric-vehicle supply chains have become deeply international. Europe also lacks many of the raw materials, processing capacities and technologies required to reproduce the entire value chain within its own borders.

A policy that focuses too narrowly on “Made in Europe” therefore creates new risks. It may exclude not only Chinese competitors, but also companies and inputs from countries with which Europe wants to build closer economic-security relationships.

This reflects a broader weakness in Europe’s emerging economic-security policy. As I have also argued in relation to the EU’s Tech Sovereignty Package, Europe is becoming more serious about the protect pillar of economic security, but remains much less developed on the partner pillar. The policy debate is increasingly centred on screening, localisation, trade defence and reducing dependencies. Much less attention is given to how Europe can organise international value chains with trusted partners, pool industrial capabilities and create shared economic benefits.

Protection may be necessary, but it is not a complete industrial strategy. Europe cannot build resilience by attempting to produce every strategic input itself. Nor can it develop meaningful alliances if its local-content requirements systematically exclude the countries whose resources, technologies and production capacities it needs.

The challenge is therefore not simply to choose between open markets and European localisation. It is to distinguish between dependencies that create unacceptable vulnerabilities and forms of interdependence that can be made more resilient through long-term partnerships.

This is where the comparison with China ultimately points beyond protection. Europe needs stronger links between public support and production, but these links should not stop at the EU’s borders. They should be extended through partnership-based industrial policy: an approach in which trusted partner countries can participate in strategic value chains, public support is tied to shared resilience and value creation, and industrial cooperation becomes a central element of economic-security alliances.

Partnership-based industrial policy – from local content to allied content

Partnership-based industrial policy would mean enlarging the geographical scope within which industrial policy is designed, financed and implemented. Instead of one country or the European Union funding an industry primarily for its own producers and consumers, a group of partner countries would co-finance the development of strategic value chains and share the resulting industrial, technological and economic benefits and risks.

Such an approach could offer several advantages.

First, it would reduce the fragmentation of markets and production. If every country attempts to establish its own battery factories, processing facilities, research programmes and subsidy schemes, the result will be duplicated investment and production facilities operating below efficient scale. A partnership-based approach would allow countries to coordinate which capabilities are developed where.

This would enable a higher degree of specialisation. Not every partner would need to reproduce the entire value chain. One country could specialise in mineral extraction and processing, another in cathode materials, another in battery cells, and another in vehicle production, power electronics or recycling. This would not mean accepting passive dependence. It would mean organising specialisation within a framework of reciprocal commitments, common standards and long-term cooperation.

Second, partnership-based industrial policy would enlarge the funding base for demand-side incentives.

Electric-vehicle subsidies are currently financed predominantly by national governments, while their industrial benefits may accrue elsewhere. A group of partner countries could instead coordinate consumer incentives, fleet-procurement programmes and charging-infrastructure investments. Access to these incentives could be linked to allied-content requirements rather than narrowly defined national or European local-content requirements.

A vehicle might qualify because its final assembly, battery cells, processed materials and other strategic components originate within an agreed network of partner countries. The participating economies would collectively create a larger market, while firms would receive a clear incentive to organise production within the partnership.

This would be particularly important for Europe. The EU market is large, but it is not large enough to efficiently localise every stage of every strategic value chain. A wider allied market could provide the predictable demand required to justify major investments without forcing all production to take place within Europe itself.

Third, partnerships would expand the available funding for research, innovation and production support.

Battery research, pilot facilities and first-of-a-kind factories are expensive. Scaling production is even more capital-intensive. When each country finances these activities separately, support remains constrained by national budgets and often produces overlapping programmes. Pooling resources would make it possible to finance larger research missions, shared testing facilities, demonstration plants and industrial-scale investments.

The benefits would also have to be shared. Partnership-based industrial policy cannot mean that partner countries contribute raw materials or public finance while the highest-value production, research and intellectual property remain concentrated in Europe. Durable partnerships would require credible opportunities for processing, manufacturing, technology transfer, skills development and employment across participating economies.

Some elements of this approach already exist.

The European Union has established strategic partnerships on critical raw materials and battery value chains with several countries. The Critical Raw Materials Act explicitly calls for mutually beneficial partnerships that support economic development in partner countries while creating more secure and diversified value chains for Europe.[9] These initiatives recognise that resilience cannot be achieved through European production alone.

European research policy is also becoming more international. Horizon Europe already includes a growing group of associated non-EU countries. In June 2026, the European Union and Australia concluded negotiations on Australia’s association with Pillar II of Horizon Europe, covering fields including digital technologies, industry, space, climate, energy and mobility.[10] This provides a model through which partner countries can contribute financially to a common research programme and enable their institutions and companies to participate under broadly comparable conditions.

These are important developments. Nevertheless, they remain closer to complementary initiatives than to the organising principle of European industrial policy.

Partnership therefore still tends to be added after European industrial policy has been designed. Europe first defines what should be produced within the EU, establishes European-content requirements and creates European subsidy instruments. It then seeks agreements with external partners to fill the raw-material, technological or financial gaps that remain.

This sequence needs to be reversed.

Europe should move from local-content requirements with partnerships as an afterthought towards allied-content requirements embedded in a jointly financed industrial strategy.

This would mean deciding with partner countries which capabilities need to be secured, where production can most effectively take place, how investments will be financed and how the benefits will be distributed. It would also mean pooling at least part of the funding for research, production support, procurement and consumer incentives.

Allied-content requirements would not need to include every country or apply equally across every industry. Participation could depend on shared security interests, enforceable commitments, sustainability standards, reliable market access and reciprocal contributions. Different industrial partnerships could be constructed for batteries, semiconductors, renewable-energy technologies or pharmaceuticals according to the specific structure of their value chains.

The partner pillar of economic security should therefore not be understood as a diplomatic supplement to European industrial policy. It should become one of its central instruments.

The choice is not simply between open globalisation and European self-sufficiency. A third option is possible: industrial alliances in which countries pool demand, finance and capabilities while sharing the benefits of production. This would reduce fragmentation without returning to dependence on markets organised without regard to resilience or geopolitical risk.

Europe’s objective should therefore not merely be to protect European production. It should be to build a wider industrial space within which Europe and its partners can achieve together the scale that none of them may be able to achieve alone.

Sources

[1] Current industrial outcome. The IEA reports that China produced about 16 million electric cars in 2025, compared with nearly 3.2 million in the EU. It estimates that China accounted for around 70% of global electric-car production, more than 80% of battery-cell production, about 85% of cathode active materials and more than 90% of anode active materials. The EU nevertheless remained the second-largest electric-car producer and a net exporter - https://www.iea.org/reports/global-ev-outlook-2026/manufacturing-and-trade

[2] European and German market-creation measures. Germany has used purchase incentives, R&D support and charging programmes; the Deutschlandnetz is intended to provide approximately 9,000 fast-charging points at more than 1,000 locations. EU legislation established progressively stricter fleet-emission targets, including the 2035 zero-emission baseline - https://bmdv.bund.de/SharedDocs/DE/Artikel/K/deutschlandnetz.html

[3] Battery production support. The first battery IPCEI authorised €3.2 billion of public support and anticipated €5 billion of private investment. The second authorised approximately €2.9 billion of public support and anticipated around €9 billion of private investment across the battery value chain - https://competition-policy.ec.europa.eu/system/files/2021-12/Competition%20Policy%20Brief%201-2021_Green%20Deal.pdf

[4] China’s ecosystem strategy. China’s 2021–2035 plan covers vehicles, batteries, motors, operating systems, charging, recycling and integration with the energy and digital sectors rather than treating EVs as an isolated final product - https://english.www.gov.cn/policies/latestreleases/202011/02/content_WS5f9ff225c6d0f7257693ece2.html

[5] Chinese demand instruments. China extended purchase-tax advantages through 2027, with exemptions for 2024–2025 and reduced benefits for 2026–2027. Its dual-credit regulation links vehicle manufacturers’ obligations to fuel consumption and new-energy vehicle production - https://english.www.gov.cn/news/202306/21/content_WS64929394c6d0868f4e8dd11c.html

[6] Scale and localisation. The frequently cited $230.9 billion estimate is a conservative external assessment rather than a complete official account, because many local-government, credit and land-related interventions are difficult to quantify. Research on the whitelist identifies 2016–2019 as the principal period during which subsidy eligibility favoured approved domestic battery suppliers - https://www.csis.org/blogs/trustee-china-hand/chinese-ev-dilemma-subsidized-yet-striking

[7] EU trade defence. Definitive additional duties introduced in 2024 include 17% for BYD, 18.8% for Geely, 35.3% for SAIC and differentiated rates for Tesla and other cooperating or non-cooperating companies - https://trade.ec.europa.eu/access-to-markets/en/news/eu-commission-imposes-countervailing-duties-imports-battery-electric-vehicles-bevs-china

[8] The current localisation turn. The Industrial Accelerator Act is, as of June 2026, a Commission legislative proposal rather than final law. Its annex proposes EU assembly, a 70% threshold for non-battery vehicle components and phased requirements for battery, powertrain and electronic components in specified public-support and procurement contexts - https://single-market-economy.ec.europa.eu/publications/industrial-accelerator-act_en

[9] Critical Raw Materials. The Critical Raw Materials Act explicitly combines EU capacity-building with mutually beneficial third-country partnerships intended to support partner-country development and diversify EU value chains - https://commission.europa.eu/topics/competitiveness/green-deal-industrial-plan/european-critical-raw-materials-act_en

[10] HORIZON. The EU and Australia concluded Horizon Europe association negotiations on 9 June 2026. The planned association covers Pillar II, including industry, climate, energy and mobility; formal implementation still depends on completing the necessary procedures - https://research-and-innovation.ec.europa.eu/news/all-research-and-innovation-news/european-union-and-australia-successfully-conclude-horizon-europe-negotiations-2026-06-09_en