By Laurence Benhamou
Chinese carmakers have quickly built their presence in the lucrative European auto market, fueled by technological advances that their competitors are trying to copy, and analysts say their next step is to start production in the country.
Largely unknown on the continent three years ago, brands including BYD, Chery, Geely and XPeng accounted for a nine percent share of European sales in March – and 14 percent of electric cars – according to Dataforce.
This has doubled within a year, and some models even rank among the best sellers in Italy, Spain and the UK.
Their success is unsettling European manufacturers, weakened by a domestic market that has shrunk by a quarter since 2019 and misplaced by European Union plans to make 90 percent of all cars sold electric by 2035.
The policy has come at just the right time for Chinese manufacturers, who are way ahead in the country’s electric segment thanks to strong state support.
“Europe, one of the only major global markets, is a natural outlet for Chinese carmakers,” said Jamel Taganza, head of consulting firm Inovev.
“The EU plan for electric cars was practically made for them; it opened up the European market for them in a very short time.”
Exports are an even greater necessity for Chinese firms than their European rivals because they face significant overcapacity.
Their factories are operating at only 50 percent of their potential, compared to about 60 percent for European companies, pointed out Alexandre Marian, an analyst at AlixPartners.
“The strength of Chinese manufacturers is not just labor costs; it’s innovation,” added Michael Foundoukidis, an auto analyst at Oddo.
“Today in China, they are offering vehicles that are twice as efficient for half the price” of European models.
The next step is local production.
“All manufacturers believe that if you want to gain a foothold in a market, it is easier to produce locally to avoid customs duties and transport issues,” said Lionel French Keogh, sales director of Chery France, which aims to build a small electric city car in Europe.
“If they want to sustainably surpass a 10 percent market share in Europe, they will have no choice but to gather in Europe,” confirmed Foundoukidis.
Europe fights back
EU customs barriers to imported electric cars — set in 2024 — are encouraging this change.
BYD is building a factory in Hungary, while Leapmotor – a Stellantis partner – plans to produce two models at a Stellantis plant in Zaragoza, Spain.
Reports also say that Stellantis is considering producing Leapmotor models in Spain under the Opel brand.
And XPeng is assembling shock kits in Austria.
To fight back, European manufacturers have adopted the same strategy the Chinese used in the 2000s: learning from competitors through joint ventures.
Examples include Stellantis with Leapmotor and Volkswagen with Xpeng, which is launching a first jointly developed electric model for the Chinese market.
Meanwhile, Renault has teamed up with Geely for internal combustion and hybrid engines.
This is a “reverse joint venture,” said analyst Marian of AlixPartners.
Chery’s French Keogh added that European manufacturers “are looking for these alliances to learn Chinese know-how in electric vehicles”.
“It’s a complete reversal of the situation: for a long time, Europeans were contemptuous of Chinese manufacturers, seen as mere imitators.”
Renault has decided to imitate the Chinese by developing its new models in two years and entrusted the development of its electric Twingo to its research and development center in China.
The game is not lost for the Europeans, according to Foundoukidis, “as long as the traditional manufacturers step up their competitive efforts to catch up with their Chinese rivals over the next two or three years.”
But they may be forced to cut capacity in Europe, or even close factories.
This is the case in Poissy, in the Paris region, where Stellantis has decided to stop making cars, while Volkswagen has decided to make major staff cuts and reduce its global capacity by one million units.
“We should not underestimate the ability of European manufacturers to react,” adds Taganza.
Renault’s Twingo will be a test, as will the strategic plan that Stellantis will announce on May 21.
Meanwhile, BYD has applied to join the European Automobile Manufacturers Association.
“No decision yet,” said an ACEA spokeswoman, as it seeks “an established industrial presence in Europe.”
