The European Commission threatened on Wednesday to impose import tariffs on Chinese electric cars of up to 38.1%, after an investigation found evidence of illegal support from subsidies.
The subsidies cause the "threat of economic injury" to electric car producers in the European Union, the commission said. The provisional tariffs on Chinese manufacturers could range from 17.4% on BYD Auto, 20% on Geely and 38.1% on SAIC Inc.
Manufacturers that did not cooperate with the commission investigation could be hit with import tariffs of 38.1%.
Existing EU tariffs on all non-EU manufacturers of cars stand at 10%.
The higher import duties will only be applied if the EU and China cannot find a solution to the issue, and would come into force from July 4.
Companies then have a two-week window to comment on the provisional tariffs before they later become definitive.
The EU threat follows the imposition of 100% tariffs by the U.S. on Chinese electric car imports.
Tensions over Chinese exports have been flaring, with Washington and Brussels accusing Beijing of supporting sectors like green technologies with massive state subsidies.
The threat of tariffs is a blow for Germany and the country's massive automotive manufacturing industry who were against the move over fears of retaliation from Beijing on German car exports.
The German Association of the Automotive Industry (VDA) on Wednesday criticized the European Commission's move.
The influential industry lobby group's president, Hildegard Müller, said, "Countervailing duties on electric cars imported from China are not suitable for strengthening the competitiveness of the European automotive industry."
The German Chamber of Industry and Commerce (DIHK) also warned that the move could lead to greater trade conflicts.
China is the largest car market in the world and the Duisburg-based Centre Automotive Research (CAR) reports that German car manufacturers sell 30%-40% of their output on the Chinese market.
A fierce price war has been raging among electric car manufacturers in China for some time. Meanwhile, German brands want to take on competitors such as the U.S. car manufacturer Tesla and Chinese brands such as BYD or Nio.
However, BMW, Mercedes, VW and other companies could be the first target of possible Chinese countermeasures should the potential tariffs lead to a wider trade conflict.
The commission officially launched an investigation last autumn into Chinese electric vehicles to see if economic competition was distorted.
"The price of these cars is being artificially reduced by huge state subsidies, and this is distorting our market," Ursula von der Leyen, the commission's president, said as she announced the probe.
According to the commission, Chinese electric cars are normally around 20% cheaper than models built in the EU.
U.S. car manufacturer Tesla, which operates manufacturing facilities in China, has already applied for such an individual rate.
If the EU tariffs are imposed, and stay in place for four months, they would then become definitive and would be in force for five years.
In contrast to German opposition, French President Emmanuel Macron has spoken in favor of punitive measures on China's exports of electric vehicles.
In an interview with The Economist in May he said it was unacceptable for European car producers to be at a disadvantage compared to Chinese companies due to EU state aid rules and different tariffs.
French car brands have a much smaller market share in China and as a result, Macron's position is viewed as an attempt to protect French car manufacturers such as Peugeot and Renault.
