Electric vehicles would need EU-made components worth at least 70% of total component value, batteries excluded, to qualify for European purchase incentives and public procurement under the European Commission's draft Industrial Accelerator Act (IAA), reported Euronews on October 6. The proposal covers battery electric vehicles, plug-in hybrids and hydrogen fuel-cell vehicles, and attaches origin conditions to support schemes run by national and local governments as well as to public-sector purchases and leases.

The rules would hit Chinese manufacturers hardest. Europe took roughly 40% of the value of Chinese-made EV exports in 2024, according to the International Energy Agency (IEA), and cars built in China command higher prices there than at home. Countervailing duties already apply to Chinese battery electric vehicles, and the IAA would stack localization burdens on top.

What would the draft rules require?

The baseline requirements are strict:

• Vehicles must be assembled within the EU.
• EU-made components must account for at least 70% of total component value, excluding the battery, calculated on ex-works prices.
• The rules apply to support schemes introduced or renewed from six months after the legislation enters into force.

Batteries face a separate, escalating track. Initially, at least three main battery components, including the cells, must be EU-made. Three years after entry into force, that minimum rises to five — adding cathode active materials and battery management systems alongside cells.

From the same three-year mark, electric drivetrains and main electronic systems would each need an EU-made share of at least 50%, again on ex-works prices. Small M1E vehicles assembled in the EU get a derogation: they can qualify either through the 70% component threshold or by using at least three EU-made main battery components including cells.

How do the rules compound pressures on Chinese automakers?

Chinese producers are already squeezed by weak domestic demand, overcapacity and price competition, making Europe pivotal for volumes and earnings — Chery has framed overseas sales as a route to higher brand value and profitability. Localizing production to dodge tariffs brings its own costs. The IEA estimates battery production costs in Europe and the US, excluding government support, run as much as 50% higher than in China, so deeper use of EU-made components is likely to erode tariff savings through higher production costs.

The draft IAA also tightens conditions on foreign investment. Enhanced requirements would apply when companies from countries holding more than 40% of global production capacity in strategic industries such as EVs and batteries invest more than $112.7 million in the EU, with joint ventures, foreign equity restrictions, technology transfers and local employment among the assessment criteria. Chinese companies are the clear target.

Beijing's workarounds are narrowing. Chinese brands' share of the EU plug-in hybrid market — currently outside the countervailing duties — jumped from 3% in 2024 to 13%, according to a July analysis by Transport & Environment (T&E). For local output, Leapmotor with Stellantis and Geely with Ford are using partnerships to cut initial investment costs. But the EU has demanded China voluntarily restrain hybrid exports, injecting uncertainty into vehicle-type switching strategies.

What does it mean for UK and Korean players?

The UK faces a separate squeeze. Battery rules of origin under the EU–UK Trade and Cooperation Agreement tighten next year, and the European Automobile Manufacturers' Association (ACEA) estimates 82% of the 520,000 electric passenger cars and vans due to be exported from the EU to the UK next year will fail those rules and incur a 10% tariff. UK automakers have asked for a phased deferral of local sourcing obligations for battery cells and cathode materials.

London is also weighing additional tariffs on Chinese EVs. The EU reportedly pressed for higher duties and closer trade-policy coordination during talks on UK participation in the IAA, and raising UK tariffs to EU levels is among options under review. No final decision has been made, partly over fears Chinese retaliation could hurt exports by British automakers including Jaguar Land Rover. The UK government says its response will reflect the interests of domestic industry and the wider economy.

Korean suppliers, meanwhile, see opportunity. Components meeting EU origin requirements would be better placed to win demand from automakers that must raise domestic sourcing shares, and Korean firms serving Hyundai and Kia's European plants could leverage local bases to expand business with European OEMs. That requires capacity: Hyundai Wia began series production on September 30 at a new factory in Martin, Slovakia, after an investment of roughly $29.9 million. The plant can supply constant-velocity joints for 800,000 vehicles a year and coolant modules for 280,000, feeding models including the Kia EV2 and EV4. The company plans to lift CVJ capacity as much as fivefold, add HVAC modules and grow headcount from 98 workers now to about 410 by 2030.

Can Europe's supply chain keep pace?

The core tension: Europe is tightening rules faster than it is building supply chains. The IEA has flagged that European battery factories depend on Chinese imports for a substantial share of key components, with insufficient investment in intermediate production deepening vulnerability. In an October 1 analysis, T&E — a supporter of expanded domestic production — identified cathode active materials and precursors as bottlenecks in Europe's battery supply chain.

Forecasts that EU cell output could cover demand for publicly supported vehicles by 2030 depend on planned factories actually coming online. Cathode active material capacity may suffice for corporate vehicles, but covering private purchases would require additional capacity. If tighter import restrictions and localization obligations arrive before alternative sourcing is secured, European automakers' component procurement and production schedules will feel the strain too — a risk that will shape both the IAA's final text and the pace of factory investment across the bloc.