Swedish-founded Tesla rival Polestar considers weaning itself off China as EU probe into BYD and owner Geely brings tariff threats

Ever since BYD sent carmakers into a “state of shock late” last year by shipping its cut-price EVs to Europe, the prospect of a backlash from EU regulators has left manufacturers with close ties to China on tenterhooks.

Polestar, owned by Chinese multinational Geely, is one of the carmakers facing the threat of a tidal wave of tariffs from Europe, and it is forcing the struggling group’s Swedish CEO into a rethink over where the embattled manufacturer makes its cars.

Investigators for the European Commission have been visiting Chinese automakers BYD, SAIC, and Polestar’s majority owners Geely, after the body’s chief Ursula von der Leyen argued the carmakers were distorting the European market.

The visits are being used to decide whether the bloc should impose higher import tariffs on Chinese automakers to head off the threat to native manufacturers, who are so far unable to compete on price.

While this has been music to the ears of under-threat manufacturers like Volkswagen and Renault, Swedish-founded Polestar is in the unusual position of being more vulnerable than not to fines slapped on Chinese-origin cars.

Polestar makes most of its cars in China, particularly those it exports to the EU. It is likely any legislation that seeks to clip the wings of Chinese carmakers would also hit the Swedish automaker.

The company’s CEO Thomas Ingenlath has indicated that the threat is so great that the carmaker may shift production from China to the U.S. for the cars it plans to send to the EU.

Polestar makes its Polestar 3 car in South Carolina, and Ingenlath is now considering shipping this model to the EU.

"We actually are in limbo there because we of course don't know where the investigation is going," Ingenlath told Reuters of the EU probe into Chinese EVs.

"The direction to go to a global footprint and manufacturing is something we have accelerated."

Polestar’s China links

Polestar started life as a spinoff of Swedish automotive giant Volvo. However, a sustained failure to cut into rival Tesla’s market share forced Volvo to divest over time as the EV market turned sour.

In February, Volvo announced it would be cutting its stake in Polestar from 48% to 18%.

That has left Chinese car manufacturer Geely as the majority shareholder in Polestar, owning a 24% stake according to recent SEC filings, marking a significant breakaway from its original home of Sweden.

Polestar has manufacturing hubs in the Chinese provinces of Chengdu and Taizhou in addition to its South Carolina plant. The group is also contemplating a manufacturing facility in South Korea.

Shares in Polestar have plummeted more than 97% since its peak in 2021.

The company received a $1 billion lifeline from banks including BNP Paribas and Standard Chartered to help it get to the next phase of its growth plan.

Ingenlath has been forced to put on a brave face as his company joins a wave of once-promising EV startups hemorrhaging value as drivers put off their purchases.

While some automakers like Aston Martin, Ford, and Mercedes have put the brakes on their EV plans while they wait for demand to catch up, Ingenlath is convinced EV expansion is the right strategic move.

Ingenlath’s latest headache is a legislative one, with tensions flaring since European Commission President Ursual von der Leyen called out Chinese automakers last year.

“Their price is kept artificially low by huge state subsidies. This is distorting our market,” von der Leyen said in September.

“And as we do not accept this distortion from the inside in our market, we do not accept this from the outside.”

This story was originally featured on Fortune.com