China’s automotive industry is entering a new phase of its European expansion, and the next battleground may not be showrooms or import terminals, but European factories. Chinese automakers are rapidly increasing local production, with annual output in Europe potentially reaching 1.5 million vehicles by 2035.

The shift marks a significant change in strategy for companies such as BYD, Leapmotor, Chery and Geely. Rather than simply exporting cars from China to Europe, these manufacturers are increasingly establishing production operations on European soil to reduce tariff exposure, shorten supply chains and strengthen their position in one of the world’s most important automotive markets.

According to Global Mobility, Chinese brands are expected to produce around 90,000 vehicles in Europe this year. That figure could climb to approximately one million vehicles annually by 2030 before reaching 1.5 million units by 2035.

Chinese Car Production in Europe Is Accelerating

The growth of Chinese automotive manufacturing in Europe is already visible.

BYD is preparing to begin vehicle production in Hungary, while the Chinese EV giant is also considering an additional manufacturing facility in Spain. Meanwhile, vehicles from the Jaecoo and Omoda brands are already being produced in Spain.

Leapmotor is preparing to manufacture electric vehicles at Stellantis’ Zaragoza plant in Spain, giving the Chinese automaker access to an established European production facility without having to build an entirely new factory from the ground up.

Geely is also expanding its European manufacturing footprint through a partnership with Ford in Valencia.

Taken together, these projects demonstrate how quickly China’s automotive industry is moving from being primarily an exporter to becoming a local manufacturer in Europe.

Why Chinese Automakers Are Building Factories in Europe

One of the biggest incentives behind the move is straightforward: tariffs.

Producing vehicles locally can help Chinese automakers avoid some of the costs associated with importing finished vehicles from China. Local manufacturing can also reduce transportation costs and potentially make production more flexible as European demand for electric vehicles and other electrified models continues to evolve.

But establishing a factory in Europe does not necessarily mean that a vehicle is genuinely European in terms of its economic contribution.

That distinction is becoming increasingly important for European policymakers.

Economist Sander Tordoir has warned that without additional legislation, Chinese companies could potentially establish what are effectively assembly operations in Europe, using predominantly Chinese components while generating relatively limited economic value for European suppliers and manufacturers.

The concern is that Europe could gain vehicle assembly jobs while much of the higher-value manufacturing activity—including batteries, electronics and other critical components—remains concentrated in China.

Europe Wants More Local Components

European lawmakers are therefore considering measures designed to ensure that vehicles manufactured in Europe contain a greater share of locally sourced components.

The proposed Industrial Acceleration Act is intended to strengthen Europe’s industrial base and increase domestic production. While the precise details are still being negotiated, one potential mechanism is the introduction of requirements or quotas governing how many European-made components must be used in vehicles produced on the continent.

That could fundamentally change the economics of Chinese automotive investment in Europe.

For a manufacturer to claim that a vehicle is genuinely “made in Europe,” policymakers are considering a much broader definition than simply assembling a vehicle at a European plant.

According to Gregor Williams of the Rhodium Group, a significant proportion of the vehicle’s components—including the battery—could ultimately need to be produced locally for European manufacturing requirements to be satisfied.

BYD Could Face a Major Strategic Decision

The potential rules could be particularly important for BYD.

The Chinese automaker is known for its unusually high level of vertical integration. Unlike many traditional automakers that rely heavily on networks of external suppliers, BYD produces a substantial number of key components within its own industrial ecosystem.

That approach has helped the company control costs, technology and supply chains in China.

However, the same strategy could become more complicated if European regulations require a greater percentage of components to originate from European suppliers.

Building an assembly plant is one thing. Creating a localized European supply chain for batteries, electronics and other major components is considerably more expensive.

BYD and other Chinese automakers will therefore have to determine whether the additional investment required to localize production is justified by the size and long-term potential of the European market.

Europe Could Become a New Manufacturing Base for Chinese Brands

The emerging production network is significant because it suggests Chinese automakers are no longer treating Europe simply as an export destination.

Instead, Europe is increasingly becoming part of their global manufacturing strategy.

Hungary, Spain and other European markets could become important production hubs for Chinese brands, particularly as companies look for ways to minimize logistics costs, reduce exposure to trade barriers and establish closer relationships with European customers.

For European suppliers, the arrival of Chinese manufacturers could also create new opportunities. Local factories could require everything from seats, glass and tires to electronics, software, batteries and metal components.

But that potential depends heavily on how European regulations evolve.

If lawmakers impose strict local-content requirements, Chinese automakers may be pushed toward deeper integration with European suppliers. If the rules remain relatively flexible, manufacturers could potentially continue importing many high-value components from China while performing final assembly in Europe.

The Battery Question Could Be Critical

Among all vehicle components, batteries could prove to be one of the most important.

Electric vehicles are particularly dependent on battery technology, and China currently occupies a dominant position across much of the global battery supply chain.

Requiring batteries to be manufactured in Europe would therefore represent a substantially greater commitment than simply sourcing relatively low-value components locally.

For Chinese manufacturers, that could mean investing billions of euros in European battery production or developing partnerships with European battery companies.

It could also accelerate the development of Europe’s own battery industry.

In that sense, the debate surrounding Chinese automakers could ultimately become part of a much larger European effort to build a competitive automotive supply chain that extends beyond final vehicle assembly.

Chinese EV Competition Is Entering a New Phase

The rapid expansion of Chinese automakers has already changed the competitive landscape in Europe.

Brands such as BYD, Leapmotor, Chery, Omoda, Jaecoo and Geely are bringing increasingly sophisticated vehicles to European consumers, particularly in the electric and hybrid segments.

Local manufacturing could make these companies even more competitive.

Producing cars closer to their customers can reduce transportation costs, improve supply-chain flexibility and potentially allow manufacturers to respond more quickly to changes in European demand.

At the same time, European manufacturers face increasing pressure to remain competitive on price, technology and electric-vehicle production costs.

The result could be one of the biggest structural changes in Europe’s automotive industry in decades.

Could Europe Benefit From Chinese Investment?

The debate is not simply about whether Chinese automakers should be allowed to manufacture cars in Europe.

There is a broader question about what Europe wants to gain from that investment.

If Chinese companies establish large European factories but continue importing most high-value components from China, the economic benefits could be relatively limited.

If, however, European regulations encourage manufacturers to establish local battery production, component factories, engineering operations and supplier networks, Chinese investment could contribute significantly to Europe’s industrial base.

That is precisely the balance European policymakers are now trying to achieve.

The goal is not necessarily to prevent Chinese automakers from investing in Europe, but to ensure that their investments create meaningful economic activity within the region.

1.5 Million Chinese-Branded Cars Could Be Built in Europe

The numbers illustrate just how rapidly the landscape could change.

Chinese brands are expected to produce around 90,000 vehicles in Europe this year. Global Mobility forecasts that annual production could reach one million vehicles by 2030 and approximately 1.5 million by 2035.

If that forecast becomes reality, Chinese automakers could account for a significant share of European vehicle production within less than a decade.

The question is what those 1.5 million vehicles will actually represent.

Will Europe become little more than an assembly destination for Chinese technology, batteries and components? Or will Chinese investment help create a deeper European manufacturing ecosystem involving local suppliers, battery factories, engineering operations and thousands of additional industrial jobs?

The answer may depend as much on European regulation as it does on the ambitions of the Chinese automakers themselves.

The European Automotive Industry Is Changing

The expansion of Chinese carmakers into Europe is still in its early stages, but the direction is becoming increasingly clear.

BYD, Leapmotor, Chery and Geely are establishing production links across the continent, while partnerships with established European manufacturers provide Chinese companies with faster and potentially less expensive routes into local manufacturing.

For European automakers, the arrival of these competitors represents another major challenge at a time when the industry is already undergoing a difficult transition toward electric vehicles, software-defined cars and new global supply chains.

For European policymakers, meanwhile, the challenge is to attract investment without allowing Europe to become dependent on imported Chinese components.

If the Industrial Acceleration Act introduces meaningful local-content requirements, the next decade could see Chinese automakers investing not only in European vehicle assembly, but also in batteries, components and supplier networks.

One thing is certain: the Chinese automotive industry’s European expansion is no longer just about selling cars.

It is increasingly about building them.

And if current production forecasts prove accurate, Europe could be producing as many as 1.5 million Chinese-branded vehicles every year by 2035—a development that could fundamentally reshape the continent’s automotive manufacturing landscape.

Source: Reuters, Photo: EPA-EFE