Chinese automaker Xpeng is actively seeking a factory location in Europe, while Volkswagen is looking to downsize its number of production facilities. This scenario appeared ideal for a potential deal between the companies. However, Elvis Cheng, Xpeng’s managing director for north-eastern Europe, pointed out a significant concern with Volkswagen’s available plant, describing it as “a little bit, I would say, old.” This blunt assessment was shared during a recent industry conference, highlighting a shift in the global automotive landscape, where European carmakers are increasingly retreating and Chinese manufacturers are advancing.
The influence of Chinese car companies in Europe is growing fast, as evidenced by a surge in imports. During the first quarter of the year, Chinese cars made up 8.6% of the western European market, nearly doubling from the same timeframe the previous year, according to Berlin-based automotive analyst Matthias Schmidt. Chinese manufacturers such as BYD, Changan, Chery, Dongfeng, and Geely now aim to produce vehicles locally in Europe. While some are considering building new factories, others see opportunities in acquiring underutilized facilities from European carmakers who are struggling with excess capacity.
In a bid to capitalize on this trend, European companies are opening their doors to Chinese investors. Nissan, for instance, is in discussions with Chery to share its sole European plant in Sunderland, UK, having already sold another facility in Barcelona to the Chinese company. Similarly, Ford is reportedly selling part of its Valencia, Spain plant to Geely. Stellantis, owner of brands like Peugeot, Fiat, and Vauxhall, has partnered with Chinese rival Leapmotor to produce cars in two of its Spanish plants, demonstrating a pragmatic approach to these international collaborations.
The influx of Chinese investment provides a temporary remedy for European carmakers grappling with declining sales, which have dropped from 15.3 million units in 2019 to under 13 million units anticipated by 2025. This, coupled with US tariffs affecting exports, has left many manufacturers with surplus factory space. By selling these capacities to Chinese manufacturers, European companies can avoid the difficult processes of closing plants and laying off workers.
Despite these developments, not all European manufacturers find the process straightforward. Volkswagen’s brand chief, Thomas Schäfer, noted the difficulty of securing buyers, dismissing rumors of a new owner for its Dresden factory, the first German plant to close in 88 years, as “nonsense.” Although Xpeng’s Cheng mentioned that a deal with Volkswagen remains possible if a suitable location in Europe can be found, it’s just one of several options under consideration, including building a new plant. Behind the scenes, European carmakers express concerns about the credibility and competitive threat posed by Chinese companies across all market segments, from mass-market vehicles to luxury brands.