European Governments Compete for Chinese EV Manufacturing Investment and Jobs
European governments are facing the dilemma of Chinese electric vehicles flooding their markets while also competing for a share of the manufacturing investment and jobs that these new competitors bring. Despite the lower manufacturing costs in China, Chinese EV makers such as BYD, Chery Automobile, and SAIC Motor are eager to set up factories in Europe in order to build their brands and save on shipping and potential tariffs. European customers perceive European-made cars as higher quality, so Chinese automakers understand the importance of producing in Europe.
The European Union is currently investigating China’s auto subsidies and considering imposing tariffs on imports. While import taxes could help European automakers compete with their Chinese counterparts, they may also encourage Chinese automakers, who are already heavily investing in Europe, to further expand their operations in the region. According to consulting firm AlixPartners, Chinese-brand cars accounted for 4% of the European market last year and are projected to reach 7% by 2028.
Hungary, which produced around 500,000 vehicles in 2023, secured the first European factory investment by a Chinese automaker. EV giant BYD announced last year that it will build a factory in Hungary and is also considering a second European plant in 2025. The Hungarian government is offering cash incentives, tax breaks, and relaxed regulations to attract foreign investment. Hungary has also invested more than $1 billion in supporting new battery plants for South Korean groups SK On and Samsung SDI, as well as Chinese battery giant CATL.
Poland has also attracted Chinese EV manufacturers, with Leapmotor and its partner Stellantis choosing the Tychy plant in Poland as their manufacturing base. Poland has several programs supporting over $10 billion of investments, including incentives for transitioning to a net-zero economy and corporate income tax relief in high-unemployment regions.
Spain, Europe’s second largest car-making country, has secured investment from Chery, which will start production in the fourth quarter at a former Nissan facility in Barcelona. Spain has a 3.7 billion-euro program to attract electric-vehicle and battery plants, with China’s Envision Group already receiving 300 million euros in incentives for a battery plant. Spain may also host Stellantis’ planned fourth gigafactory in Europe with CATL.
Italy is also in the chase to attract Chinese automakers. Chery plans to establish a second, larger facility in Europe and has held talks with the Italian government. Italy can utilize its national automotive fund worth 6 billion euros between 2025-2030 to provide incentives for car buyers and manufacturers. Dongfeng and other automakers have also discussed investment opportunities with Rome.
SAIC, the owner of the MG brand, aims to build two plants in Europe, with the first potentially being announced as early as July. Germany, Italy, Spain, and Hungary are on SAIC’s shortlist for the locations of its plants.
While Chinese automakers face higher costs for labor, energy, and regulatory compliance in Europe, the costs of exporting cars made in China can quickly add up and threaten narrow profit margins. A 15,000-euro car produced in China requires significant shipping and logistics costs. Chinese automakers may find that labor costs in Northern Europe are too high for competitive production, but countries like Italy or Spain offer a balance of lower labor costs and relatively high manufacturing standards, particularly for premium vehicles. For lower-cost vehicles, Eastern Europe and Turkey are attractive locations due to lower labor costs and tariff-free vehicle and component exports provided by Turkey’s customs union with the EU and free trade deals with non-EU countries.
In conclusion, European governments are actively competing for Chinese EV manufacturing investment and jobs. The lure of building brands, saving on shipping costs, and reaching European customers who perceive European-made cars as more desirable is driving Chinese automakers to establish factories in Europe. While challenges such as higher costs may exist, countries like Hungary, Poland, Spain, and Italy are offering incentives and support to attract Chinese automakers. The outcome of the EU’s tariff decision on Chinese auto subsidies will further impact the competitiveness between European and Chinese automakers in the European market.
