Tariffs imposed on Chinese car makers selling electric cars in Europe threaten to create a “lose-lose” trade war, Mercedes-Benz CEO Ola Källenius has told Autocar.

China has now confirmed it is investigating raising tariffs on large-capacity combustion cars imported from the EU in response – something that would directly harm Mercedes.

Källenius said tariffs were a "crude" way of responding to an issue and instead called for "a negotiated solution that both parties can live with".

"If you as Europe, and Germany in particular within Europe, for 100 years-plus, and certainly after World War Two, have been a very big benefactor of markets opening up and the ability to import and export in all directions, I think it is not the right strategy to turn to protectionism. It's fundamentally against your own business model.

"That doesn't mean that I don't think that you should do what is necessary to create a level playing field, because all market participants should have the same rules, right? But we live not in a completely perfect world. There are imperfections.

"So to have a discussion about the level playing field I think is legitimate, but to resort to the very crude method of just putting up a wall of a tariff that then maybe leads to a market exclusion, that then maybe kicks off a reaction on the part of the other side of the trading partner, you have, in the worst case, an escalating trade conflict that certainly will not lead to a win-win.

"I think it will lead to lose-lose. Certainly for the player that is dependent on exports, I don't believe it's the right strategy.

"Have the conversation about the level playing field. Try to find a negotiated solution that both parties can live with. Be tough on the things where the playing field maybe is not level, but don't go into protectionism. Don't shut off markets, because it's going to stifle growth and it's going to make us economically weaker in the mid to long term."

More broadly, Källenius welcomed the competition from new entrants into the market and used it as an opportunity to "really double down on your brand promise" and make even greater investments.

"Do not sit back, invest higher than you've probably ever done, but also double down on efficiency to make sure that you can afford that investment," he said in outlining Mercedes' strategy.

"Make sure that you produce positive cash flows in this tough environment, so you can be your own venture capitalist. Make sure you have a sound balance sheet, so you also have a little bit of a war chest if the macro market conditions turn negative.

"We're doing our best to navigate through that with a high level of investment. Focus on innovation, technology and product launches and fulfilling the Mercedes-Benz brand promise."

When asked about the UK's decision to mandate sales of electric cars even in lieu of public demand for them, Kallenius said that it was in his DNA to offer "incentives over mandates" and "especially in a once-in-100-years transformation like this".

"You should not try to do it without taking the customer's preference into consideration."