Chinese automotive manufacturers are intensifying their efforts to penetrate the European market.
In the first five months of this year, registrations for BYD, Chery, and Leapmotor in the EU, UK, and EFTA markets surged by 145.2%, 316%, and 552.9% year-on-year, respectively. The growth pace of Chinese automakers in Europe has become impossible to overlook.
This rapid growth is partly due to a low initial base. Compared to established brands like Volkswagen, BMW, Mercedes-Benz, and Renault, the absolute sales volume of Chinese brands in Europe remains modest. However, their strategies for entering the European market are undergoing significant transformation.
Following the EU's imposition of additional tariffs on Chinese-made electric vehicles, Chinese carmakers have not retreated from Europe. Instead, they have begun adjusting their product offerings and production arrangements. Data from Transport & Environment indicates that in the first quarter of this year, the market share of Chinese-made EVs in the EU's pure electric market fell to 17% from 22% in 2024. Conversely, the share of Chinese brands in Europe's plug-in hybrid market has risen from 3% to 13%.
While tariffs have altered the mode of entry, they have not eliminated the opportunities for Chinese automakers in Europe.
BYD is advancing its passenger car factory in Hungary, Chery is leveraging local production in Spain to gain market access, and Leapmotor is expanding sales by utilizing Stellantis's distribution channels, after-sales service, and manufacturing resources. XPeng adopts a different approach: it positions its intelligent driving and software capabilities as key brand differentiators, conducts vehicle assembly through Magna in Graz, Austria, and is evaluating options to expand its European production capacity.
XPeng's case is particularly illustrative. It possesses intelligent capabilities honed in the Chinese market but must now confront traditional automotive industry challenges in Europe, such as dealer networks, leasing, residual values, after-sales service, and local production.
The venture of Chinese automakers into Europe is no longer merely about shipping vehicles overseas. The greater challenge lies in establishing a sustainable business within a mature, complex, and slow-growth automotive market.
Rising Barriers to Entry
The growth of Chinese automakers in Europe primarily represents a reallocation of market share.
After several years of market adjustments, the European automotive market has experienced a slow recovery since 2026, with sales still below 2019 levels. Local consumers have established brand preferences, and car purchases heavily rely on financing, leasing, and dealer networks. The familiar Chinese strategies of rapid model updates, feature competition, and direct sales cannot be directly transplanted to Europe.
Europe is not a market waiting to be filled by new brands.
Differences in automotive consumption patterns are even more pronounced. In markets like Germany, France, and the UK, leasing and financial packages play a crucial role. Consumers focus not only on the manufacturer's suggested retail price but also on monthly payments, financing costs, residual value after three years, and the availability of timely repairs if issues arise.
Factors such as on-time delivery, proximity of service centers, and the ability to sell a used car at a reasonable price all influence purchasing decisions. For a new brand, attracting consumers with its product is merely the first step before a transaction can begin.
This explains the varied entry strategies adopted by Chinese automakers in Europe.
BYD relies more on scale, supply chain, and building its own factories, hoping to amortize costs through local production and a diverse product portfolio. Chery brings its multi-brand and plug-in hybrid offerings to Europe, utilizing local manufacturing in Spain to lower the entry barrier. Leapmotor leverages Stellantis's sales and after-sales network to avoid the time-consuming process of building a distribution channel from scratch.
These actions all aim to reduce dependence on the traditional export model.
Following the EU's tariff hike, factors like shipping, inventory, and delivery cycles have gained importance. While pure electric vehicles remain the primary entry point for Chinese brands in Europe, plug-in hybrids and extended-range electric vehicles are regaining attention. This shift is driven by practical considerations in Europe, such as charging infrastructure, long-distance travel needs, and winter range.
European consumers will not automatically accept Chinese carmakers simply because they sell well in China. Brands need to rebuild trust locally, a significant portion of which stems from dealers, financial institutions, and after-sales service networks.
In this competitive landscape, XPeng serves as a notable example. It lacks BYD's scale or the backing of a traditional European automaker like Leapmotor has. However, it can initially attract users with its intelligent features and subsequently work on building channels and local operations.
XPeng began its globalization journey in markets with higher EV penetration rates, such as Norway, Sweden, and Denmark. Later, it targeted Germany as a key market, attempting to enter the most mature and fiercely competitive automotive hub in Europe.
According to official disclosures, XPeng's registrations in Germany reached 1,207 units in the first quarter of this year, marking a 179.4% year-on-year increase.
While this figure is not yet sufficient to alter the German market landscape, it indicates that XPeng is transitioning from finding early adopters to seeking operational models capable of covering larger markets.
Intelligent Driving as the Initial Calling Card
To succeed in Europe, Chinese automakers must provide consumers with a compelling reason to choose their vehicles.
Relying solely on low prices is not a sustainable strategy. Once tariffs, transportation, certification, and local operating costs are factored in, the price gap between Chinese and European brands can quickly narrow. XPeng aims to use its intelligent driving, software, and hardware capabilities to establish a brand image that transcends pure price competition.
When asked about the differences between XPeng's and BYD's approaches to the European market, XPeng CEO He Xiaopeng stated that the companies are fundamentally different, with distinct market logics. He noted that while BYD has its own path, XPeng aspires to differentiate itself through advancements in software and hardware technology, aiming to become a mid-to-high-end brand in Europe.
This strategy has been validated in the Chinese market, where intelligent driving assistance has transitioned from a feature in a few premium models to a more widely available option across price ranges. XPeng hopes to bring the algorithm, data, and software capabilities accumulated in China to Europe, creating a distinct brand identity compared to traditional automakers.
However, upon entering Europe, the primary challenge for intelligent driving is not user experience but regulation.
He Xiaopeng mentioned that advanced driver-assistance systems in Europe require the implementation of the EU's DCAS regulations, along with ensuring safety standards and compliance with data privacy protection rules.
It is understood that the EU is continuously refining rules related to vehicle safety, driver assistance, and automated driving. The UNECE is also advancing regulatory frameworks for autonomous driving, connected vehicles, and driver assistance systems. The DCAS UNR 171 series 02 regulation approved by the UN's WP.29 is set to take effect by the end of 2026.
Features already operational in China for Chinese automakers cannot simply be ported to Europe with a software update. Vehicles require new type approvals, and the scope of functional availability, data usage, incident recording, and software updates must all comply with local requirements.
The European road environment also presents different challenges for algorithms. Factors like cyclists, pedestrians, traffic signs, right-of-way conventions, and driving habits differ from those in Chinese cities. Sources within autonomous driving teams at new EV makers indicate that local R&D in Europe needs to address these differences while adhering to data regulations like GDPR.
Chinese automakers can bring hardware and algorithms to Europe, but they cannot directly transfer data from Chinese roads, user habits, or incident handling experience. For intelligent driving, local data collection, regulatory certification, and liability handling will increase R&D and operational costs.
In the short term, intelligent driving may not independently generate significant software revenue in Europe. XPeng currently focuses on selling hardware and software as an integrated package. Whether it will charge separately for software licenses in the future remains under internal discussion and is not yet a publicly announced business plan.
While intelligent driving can attract consumers to showrooms, it cannot handle certification, delivery, or after-sales service for XPeng. The attention generated by technology must ultimately pass through Europe's regulatory and commercial systems.
This is why local production is becoming increasingly crucial. Vehicles are no longer merely exported from China to Europe; production, delivery, and supply chains must gradually move closer to the target market.
The Significance of Local Production
Tariffs have transformed local production from a cost consideration into a prerequisite for market entry.
However, the reality in Europe is that it does not lack automotive factories; it lacks long-term orders to keep these factories running at capacity.
Data shows that the average capacity utilization at Volkswagen's German plants was around 81% in 2026. Overall car sales in the European market remain significantly lower than 2019 levels.
This situation presents an opportunity for Chinese automakers but also complicates negotiations.
Europe possesses mature factories, a skilled workforce, and supplier networks, allowing Chinese companies to avoid starting completely from scratch. However, European factories also face higher costs related to labor, energy, environmental compliance, and employment regulations. Labor unions and local governments have clear expectations regarding job preservation, investment, and production volume.
Chinese automakers seek rapid implementation and low costs, while European stakeholders are concerned about the factory's long-term viability, job security, and the company's commitment to continued investment.
Currently, Chinese automakers in Europe generally follow two approaches: building their own factories to control production and supply chains, or initially utilizing existing European capacity and channels to shorten the entry timeline.
BYD has chosen to build a new energy passenger car factory in Hungary to gain greater control over production and supply chains. However, due to recent policy changes in Hungary, the factory's completion timeline has been delayed compared to earlier estimates.
Chery is entering Europe through a local production project in Barcelona, Spain, leveraging existing manufacturing foundations and partnerships to reduce factory construction time.
Leapmotor, through its partnership with Stellantis, utilizes Europe's existing manufacturing, sales, and after-sales resources to address the most challenging aspects for a new brand entering the market.
XPeng currently relies on Magna for vehicle assembly in Graz, Austria, following a path of utilizing established capacity first and then evaluating expansion. This approach requires lighter investment and offers faster speed.
He Xiaop透露, XPeng hopes to eventually have not just one, but potentially multiple manufacturing plants and R&D bases in Europe, possibly for vehicles and even other products like robots.
XPeng is evaluating options to expand its European production capacity, including adding new production lines or acquiring existing factories. It is understood that XPeng is in discussions with the Volkswagen Group regarding the potential acquisition of production lines.
Volkswagen stated in April that it was evaluating options for bringing Chinese models to Europe or sharing some production capacity. However, subsequent reports indicated no such negotiations were taking place.
This rhetoric highlights that European factories are not empty plots waiting to be filled. Factories are intertwined with employment, labor unions, suppliers, local governments, and brand control.
The European Commission's proposed "Industrial Acceleration Act" in March also signals a direction: Europe aims to retain more manufacturing and supply chain activities locally.
Local production is not solely about reducing tariffs and shipping costs. It involves long-term local expenditures on facilities, labor, inventory, and supply chains. Delivery cycles, parts inventory, after-sales response times, and dealer confidence are also affected.
If sales volumes do not materialize quickly, the savings from reduced transportation and tariffs can be quickly consumed by labor costs, depreciation, and inventory expenses.
Sustaining the Business in Europe
In Europe, the difficulty often lies not in making the first sale.
Leasing and financial packages hold significant importance in European automotive sales. The International Energy Agency notes that leasing prices factor in vehicle depreciation. Stable residual values can reduce consumer ownership risks and also influence the pricing of leasing and financial plans.
The German market exemplifies this issue. IEA data shows that used EV sales in Germany reached approximately 400,000 units in 2025, accounting for slightly over 6% of the used car market. As the used car market grows, a new brand's ability to maintain residual values will directly impact subsequent new car sales cycles.
A dealer familiar with the European market stated that residual value is a quintessentially European requirement, and brands must adopt a long-term perspective.
The same source estimates that leasing and bank financing account for about 60% to 70% of local car sales in their experience. While this may not represent a uniform ratio across all of Europe, it illustrates that German dealers are not engaged in one-off vehicle sales but in transactions involving inventory, financing, and residual values as a whole.
XPeng's head of sales operations in Germany noted that profitability for dealers is not the current issue; more importantly, they need to have the motivation to sell.
Dealers bear responsibilities for inventory, staff, test drives, repairs, and customer complaints. If a new brand can only make dealers profitable in the short term through manufacturer subsidies, it is difficult for dealers to commit long-term.
Currently, XPeng in Germany ships vehicles only after dealers have made payment. This practice reduces XPeng's own inventory risk but requires dealers to tie up more capital. For dealers, selling cars is only part of the revenue; inventory turnover, maintenance services, and used car circulation must also be factored into the accounts. How automakers and dealers distribute these pressures directly affects whether the distribution channel can continue to expand.
Currently, in markets like Germany, local consumers rely on familiar dealers. The aforementioned dealer source pointed out that German users are very direct in their assessment of the product itself, with a higher-than-expected conversion rate from test drives to orders.
This means XPeng cannot rely solely on online marketing and launch events to build its brand. German consumers evaluate factors like chassis, range, driver assistance, after-sales service, and residual value together, ultimately calculating the total cost of ownership over three years or even longer.
Currently, XPeng employs three channel models in Europe: company-owned stores, authorized dealers, and general distributors. Different markets use different approaches, reflecting the local automotive industry structure: Germany requires the trust and service capabilities of dealers, Nordic markets are more receptive to direct sales by new brands, and smaller markets may rely more on general distributors.
Other automakers also lack a ready-made formula. BYD needs to achieve scale, Chery must clearly differentiate its multiple brands, Leapmotor depends on whether its partnership with Stellantis can consistently generate orders, and XPeng must prove that its intelligent features ultimately translate into sales volume and strong residual values.
Regardless of the chosen path, selling the first batch of vehicles is just the beginning. Many vehicles that entered Europe in recent years have not yet completed a full leasing cycle. The true pressure will emerge when vehicles return to the used car market, when dealers decide whether to replenish their initial inventory, and when local factories begin bearing the costs of labor, inventory, and depreciation.
Establishing after-sales service networks, parts supply, leasing schemes, and used car circulation requires gradual development within the local market. Headquarters can help a new brand sell its first batch of cars but cannot long-term replace the roles of dealers, financial institutions, and used car dealers.
When assessing progress in the European market, it is essential to look beyond just registration numbers. Key questions include: Will dealers restock after the initial batch is sold? What price will used cars fetch after leases expire? Will local factories be profitable or loss-making once operational? The answers to these questions will largely determine whether Chinese automakers can establish a firm foothold in Europe.
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