Tesla’s fall in Europe will only hand the keys to Beijing

European consumers are done with Elon Musk: Tesla sales in the EU have tanked 58% in two months.

But the vacuum Musk leaves behind isn’t being filled by Renault or Volkswagen. Instead, a tidal wave of cheap, often state-backed Chinese EVs are flooding the European market.

In February alone, nearly 20,000 Chinese electric vehicles hit European roads, outpacing Tesla and battering local rivals — a surge that reflects how Chinese automakers have expanded their share of Europe’s EV market from 4% to 19% in just five years.

And that’s just the tip of the iceberg. From electronics to solar, AI to fashion — Chinese firms are steamrolling through Europe. Sure, some of them have earned it through innovation and strategic investment, but others rely solely on rapid scale and unfair price wars.

Xiaomi now controls about one-fifth of the EU smartphone market, thanks to a relentless rollout of budget devices. BYD’s EVs are seeing triple-digit sales growth, with the company expanding its UK retail footprint from 14 to 60 locations in just a year.

Shein, meanwhile, boasts nearly 19 million active European users and has built major logistics hubs in Poland and elsewhere to speed up shipping. Even Temu—a barely two-year-old app — has already topped EU download charts, drawing over 92 million active users with cut-rate prices on virtually everything.

Tariffs may sound like a tough response, but they barely slow the tide. Recent years have seen the weaponisation of tariffs from both East and West rapidly heading towards the zero-sum game of a global trade war.

But despite the EU’s provisional duties on Chinese EVs—up to 35% in some cases — imports keep rising as firms like BYD absorb the hit or reroute production through trade-friendly countries.

With the US, the UK and much of Europe ramping up incentives for domestic production, no wonder China is scrambling to maintain its competitive edge.

Trading Silicon Valley for Shanghai?

At the same time, Europe’s own manufacturing remains too slow and too small. Its $327 billion trade deficit is proof of just how deeply it’s being outproduced, undercut, and pushed aside — right in its own backyard.

Worse still, this economic dependence is entangling Europe in a deeper moral compromise. Many of these imports originate in supply chains powered by surveillance, coercion, and even forced labor.

Just last month, Brazilian authorities shut down a BYD-linked factory and rescued over 160 Chinese workers living in slavery-like conditions. Europe’s markets are falling into the same trap as they become increasingly tied to a regime that jails dissent and exports control.

Europe isn’t escaping its overdependence on a single foreign entity — it’s just trading Silicon Valley for Shanghai.

Germany’s trillion-euro defense and industrial push proves Europe can still change course. But one nation alone can’t hold the line. The EU must unite behind a bold industrial revival — targeting strategic sectors to restore competitiveness, cut dependencies, and secure its place in a more competitive global order.

Former ECB chief Mario Draghi has called for exactly that — a bold reform agenda demanding an extra €800 billion in annual investment to keep pace with global rivals. And the recently announced EU’s Competitiveness Compass plan echoes this vigour, laying out targets for green tech, digital infrastructure, and industrial resilience.

But with EU tax rates already among the world’s highest, funding such transformation won’t be easy — or popular. This is why Europe needs outside capital.

The US is already scooping up Gulf petrodollars, with Saudi Arabia planning up to $1 trillion (€912.2bn) in global investments and the UAE pledging $1.4 trillion (€1.27tr) in sovereign wealth outflows. If Europe doesn’t compete for that capital, someone else will.

EU must become a more attractive place to do business

Fortunately, the continent is beginning to land deals that matter. Gulf investors are increasingly turning to Europe’s industrial and energy sectors as long-term bets in a world beyond fossil fuels. Saudi Arabia’s Public Investment Fund (PIF) recently poured billions into European infrastructure and clean energy projects, while Mubadala, the UAE’s own sovereign wealth powerhouse, has expanded its European portfolio with major stakes in semiconductor manufacturing and green hydrogen.

These moves reflect a strategic pivot, securing footholds in industries that will define the next era.

A standout example is the UAE’s energy giant ADNOC, which recently acquired Covestro — a leading German sustainable chemicals firm — for $16 billion (€14.6bn). Covestro alone contributes about 5% to Germany’s GDP, and ADNOC’s investment is more than just a financial play.

For the Gulf, it’s a smart pivot toward stable, post-oil revenues. But for Europe, it’s a strategic lifeline.

The deal breathes fresh life into a continent grappling with declining industrial competitiveness, injecting capital, confidence, and long-term vision into key sectors. It also helps Europe double down on its green ambitions by ensuring a steady supply of critical materials for clean technologies.

With ADNOC now also eyeing a $60 billion merger (€54.7bn) with Austria’s OMV to establish a global Polyolefins powerhouse, this could mark the beginning of a deeper, mutually beneficial Gulf-European industrial alliance.

To seize this momentum, though, the EU must become a more attractive place to do business. That means regulatory clarity, investment security, and a pan-European environment where deals don’t get stuck in political limbo between member states.

If Europe does not stay in the race, then it may find itself dependent on systems built by others — forced to adapt rather than shape the future.

Saman Rizwan is an analyst of South Asian affairs and a former researcher at the Centre for Strategic and Contemporary Research and the National Dialogue Forum.