EU Carmakers Cede Ground to Chinese Rivals as Market Power Shifts

Chinese carmaker Xpeng is searching for a factory in Europe, while Volkswagen aims to reduce its number of plants, creating what should have been a natural deal.

However, one problem emerged with the plant offered by Volkswagen, according to Elvis Cheng, Xpeng’s managing director for northeastern Europe: “It’s a little bit, I would say, old.”

The critical assessment of the German automaker’s facilities, delivered this week at a Financial Times conference, may cause some awkwardness between Xpeng and Volkswagen, which is also a shareholder and technology customer of the Chinese company.

The comment neatly encapsulates the shifting balance of power in the global auto industry, with many European carmakers retreating while China’s industry advances.

Chinese car sales have surged across Europe due to a wave of imports, accounting for 8.6% of the western European market in the first three months of the year, nearly double the same period a year earlier, said Matthias Schmidt, a Berlin-based automotive analyst.

Several Chinese companies, including BYD, Changan, Chery, Dongfeng and Geely, now aim to produce vehicles in Europe. Some are considering building their own factories, but struggling European carmakers have also seen an opportunity to offload underused plants, even if it helps the competitors eating into their market share.

Rather than worrying about letting the fox into the henhouse, European manufacturers are holding the door open.

Nissan is in talks with Chery to cede part of its sole European factory in Sunderland, northern England, after previously selling Chery another plant in Barcelona.

Ford has reportedly agreed to sell part of its plant in Valencia, Spain, to Geely.

Stellantis, owner of brands including Peugeot, Fiat and Vauxhall, was earlier than most to partner with a Chinese rival and last week announced that two of its Spanish plants would build cars for Leapmotor.

For European manufacturers, Chinese cash solves one problem. European car sales have fallen from 15.3 million in 2019, before the coronavirus pandemic, to less than 13 million in 2025. That, plus U.S. tariffs that have hit export sales, has left manufacturers with more factory space than they can use.

Selling capacity to Chinese rivals avoids the painful process of closing sites and laying off thousands of workers.

Yet Thomas Schäfer, chief executive of the Volkswagen brand, admitted that finding buyers is not always easy. Reports of a potential new owner for its factory in Dresden, the first to close in Germany in 88 years, were “nonsense,” he told the same conference, adding: “I don’t have anybody knocking on the door.”

Xpeng’s Cheng said a deal with VW was still possible if they could “find a location here in Europe that can work,” but it was only one of several options, including building a new factory.

Privately, Europe’s carmakers worry about losing out. One executive at a large manufacturer said the Chinese producers were “very credible” and could threaten all traditional carmakers from the mass market through to luxury.

Publicly, European bosses insist it can work out. Antonio Filosa, Stellantis’s chief executive, said he believed “a strong partnership is one that can be of benefit for both sides,” adding that Stellantis would look at partnerships beyond just the Chinese.

Stellantis demonstrated what Filosa meant on Friday, announcing a deal for Dongfeng to build Peugeot and Jeep electric vehicles in China starting next year.

Stellantis is among the companies talking to BYD, the world’s biggest maker of electric cars, according to Stella Li, the Chinese brand’s executive vice-president. However, in an interview this week with Bloomberg, she added that the company wanted control by itself. “I think it’s better to run by ourselves,” Li said. “It’s very hard to ask permission by another. We don’t have this DNA working for us. We run very fast. We make decisions in five minutes.”

BYD is nearing completion of a factory in Hungary, although subcontractors on the project have faced allegations of potential violations of EU labor laws. A spokesperson for the company said it placed “highest priority on the protection of labour rights and the strict compliance with Hungarian and European laws and regulations.”

Markus Haupt, chief executive of Seat and Cupra, two brands within the Volkswagen Group, said Chinese rivals had an “unfair position,” but “if they start producing here with a similar infrastructure, with a similar labour cost, with similar material cost, then we start having a fair competition.”

The European Commission is considering “Made in Europe” rules that would lock imports out of some incentives for electric cars, on top of electric car tariffs ranging from 17% to 35.3% aimed at offsetting Chinese government subsidies. Haupt said the EU’s strategy should be to “invite the Chinese to produce in Europe and also to localise components to a certain amount to be defined,” adding: “I think for Europe, looking where we are standing now on our industrial base, it will be super-attractive because this would create employment, this would attract investment to Europe.”