Chinese carmakers push deeper into Europe despite rising EU trade barriers

(By Caixin journalists Yu Cong and Ding Yi)

Chinese carmakers are expanding in Europe, reshaping the continent’s auto market even as Brussels attempts to curb the rise of China-made electric vehicles (EVs) with punitive tariffs, investment restrictions and stricter localisation rules.

According to European Automobile Manufacturers’ Association (ACEA) data, China remained the EU’s largest source of auto imports last year, with shipments surging about 30% year-on-year to exceed 1 million cars for the first time. Growth was driven by strong demand for plug-in hybrids and conventional vehicles.

The milestone came despite the EU imposing countervailing duties on China-made EVs, the segment with the most potential for Chinese brands. Registrations of electric cars have steadily increased in the region in recent years, and Chinese brands captured about 9% of EU EV sales last year, up from 2% in 2021, ACEA data show.

Cigdem Cerit, senior director for EMEA corporate ratings at Fitch Ratings Inc., attributed the growing popularity of China-made EVs in Europe to competitive pricing, technological edge and attractive configurations.

As tariffs failed to significantly slow momentum, the European Commission introduced the Industrial Accelerator Act. The legislation requires EVs to be assembled within the EU and source at least 70% of their non-battery components locally to qualify for public procurement and government subsidies.

In response, some Chinese carmakers have accelerated plans to establish local manufacturing operations to circumvent anti-subsidy tariffs and meet the compliance requirements.

Different paths into Europe 

Chinese EV makers are pursuing different strategies to gain a foothold in Europe, ranging from low-cost models and hybrid vehicles to advanced driver-assistance technology and local partnerships.

Industry leader BYD Co. Ltd. made inroads into Europe’s passenger vehicle market in 2022 with a focus on pure electric cars, but shifted greater attention to hybrids after the EU imposed countervailing duties on China-made battery EVs.

The move has paid off. BYD’s Seal U plug-in hybrid SUV became Europe’s best-selling model in its category in 2025, helped by aggressive pricing. In Germany, the vehicle starts at 39,900 euros (US$46,428), roughly 20% cheaper than Volkswagen AG’s Tiguan plug-in hybrid SUV. BYD has since launched two more plug-in hybrid models in Europe.

Zhejiang Leapmotor Technology Co. Ltd. has taken a different approach, leveraging its partnership with Stellantis NV to accelerate its expansion. In 2024, the EV upstart selected Europe as its first major overseas market, using the European auto giant’s established sales network to build a foothold. In the first four months of 2026, Leapmotor’s EV registrations in the EU more than sextupled year-on-year to 28,000 cars, according to ACEA data.

Its most popular model is the T03, an compact electric car that starts at just 4,900 euros in Italy after subsidies. The low-pricing strategy helped make it the country’s best-selling all-electric car in April, with sales exceeding 4,000 units.

XPeng Inc., meanwhile, is betting on technology rather than price. The company has begun testing its vision-language-action-model-based intelligent driving system on European roads and plans to offer test drives to local consumers later this year. XPeng vehicles sold in Europe already feature Level 2 assisted-driving functions including self-adaptive cruise control and lane-centring control.

Yet success remains concentrated among a handful of brands. A report by Rhodium Group LLC and the Mercator Institute for China Studies found that more than 21 Chinese automakers have entered the EU market, but only nine sold more than 1,000 new energy vehicles in the bloc last year.

Policy tightening 

The EU’s response to Chinese automakers is evolving beyond tariffs. Through a combination of investment screening, localisation requirements and carbon-related trade measures, Brussels is increasingly seeking to encourage local production while limiting reliance on Chinese supply chains.

The proposed Industrial Accelerator Act, unveiled by the European Commission in March, is widely considered the bloc’s latest attempt to curb the growing influence of Chinese EV makers.

The legislation would impose new restrictions on foreign investment in strategically important sectors, including EVs, where a single country accounts for more than 40% of global manufacturing capacity. Foreign direct investment projects worth 100 million euros or more would face enhanced scrutiny and need to meet at least four of six conditions. 

The conditions include capping foreign stake or voting rights in an EU target firm at 49%, limiting foreign ownership in an EU joint venture to 49%, licensing intellectual property, spending at least 1% of annual revenue on local research and development, ensuring at least half of the workforce are locals and sourcing at least 30% of components from within the bloc.

Zheng Yun, senior partner and Asia head of auto practice at consulting firm Roland Berger AG, said that Chinese automakers that have already built, or plan to build, factories in Europe could face additional scrutiny under the proposal, as future capacity expansions would likely be subject to stricter regulatory review. 

Among the proposed requirements, commitments on local research and development, hiring and procurement would be relatively easy to fulfil, Zheng said. Ownership caps and technology transfer provisions, however, could pose more significant operational challenges.

Zheng added that the European Commission would likely revise some provisions of the act to accommodate competing interests among member states

Rhodium also estimated that the act will take effect no earlier than 2027 and could possibly be delayed until 2028, adding that the EU could extend its countervailing duties on China-made EVs to plug-in hybrids.

Even if Chinese automakers successfully navigate tariffs and localisation requirements, they may face another challenge in the form of carbon-related trade barriers.

On 1 January, the EU put into force the Carbon Border Adjustment Mechanism (CBAM), which applies a carbon-related levy on imported cement, iron and steel, aluminum, fertilisers, electricity and hydrogen. The European Commission has also proposed extending the CBAM to cover nearly 180 steel and aluminum-intensive downstream products, such as cars and auto parts, from 2028.

While the CBAM is unlikely to affect Chinese auto exports in the short term because assembled vehicles and components are not yet covered, the trend of the regulation moving downstream is clear, said Isadora Wang, China head at Transition Asia, a think tank that tracks industrial low-carbon transitions.

If the CBAM expands to cover auto parts, there will be additional carbon costs, Wang said.

Countermeasures

Facing the EU’s increasingly protectionist measures, Chinese automakers are deepening manufacturing localisation in Europe through partnerships.

Rather than relying solely on exports, Chinese carmakers are increasingly establishing local joint ventures, partnering with contract manufacturers and sharing production capacity with established European automakers.

Chery Automobile Co. Ltd. became the first Chinese automaker to produce vehicles in Europe after signing a joint venture agreement in April 2024 with EV Motors, the parent company of Spanish auto brand Ebro, to revive a former Nissan plant in Barcelona.

During a recent interview with Caixin, Jaume Baró, head of Catalonia Trade & Investment, said that the partnership could help restore the region’s automotive industry chain and manufacturing capacity after the withdrawal of the Japanese carmaker.

Guangzhou Automobile Group Co. Ltd. and XPeng have opted for an asset-light approach. In 2025, both carmakers signed separate agreements with Canadian auto parts giant Magna International Inc. for contract manufacturing in Europe, allowing them to localise production without building factories of their own.

Speaking at an industry forum in April, Wu Zhen, Magna’s president of China operations, said that the partnerships were progressing smoothly and expanding to include more vehicle models. Contract manufacturing provides Chinese automakers with a faster and cost-effective route to localisation while benefiting from Magna’s familiarity with local regulations, Wu added.

Leapmotor has adopted a third model by expanding its partnership with Stellantis. Under an agreement inked last month, the companies are evaluating building a new production line at Stellantis’s Zaragoza plant in Spain to manufacture both an existing Leapmotor model and an all-electric model under the Opel brand.

The arrangement is increasingly becoming a template for Chinese manufacturers seeking a European foothold. Last month, Dongfeng Motor Group Co. Ltd. and Stellantis announced plans to form a joint venture to sell and produce EVs under Dongfeng’s Voyah brand in Europe. The companies also intend to produce Voyah’s all-electric models at Stellantis’ Rennes plant in France.

Stellantis has emerged as one of the most sought-after partners for Chinese automakers because of its manufacturing footprint and underutilised capacity across Europe. BYD is also exploring cooperation with the group and has held talks over the potential acquisition of some Stellantis’ underused European factories, as its own plant in Hungary is still running on a trial basis, Caixin learned.

Lu Yutong and An Limin contributed to this story.

This article was first published by Caixin Global as “In Depth: Chinese Carmakers Push Deeper Into Europe Despite Rising EU Trade Barriers”. Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.

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