Amidst a backdrop of contrasting ambitions in the automotive industry, Chinese automaker Xpeng is actively searching for a suitable manufacturing site in Europe. Meanwhile, Volkswagen is focusing on reducing its factory count. Despite what seemed like a promising opportunity for collaboration, Xpeng’s managing director for north-eastern Europe, Elvis Cheng, expressed reservations about a potential plant, describing it as somewhat outdated during a recent industry conference. This candid assessment could potentially create tension between Xpeng and Volkswagen, which not only shares a business relationship but also has investment ties.
This scenario highlights the shifting dynamics within the global automotive sector, where European manufacturers are experiencing a downturn even as Chinese companies continue to expand their footprint. Chinese car sales have witnessed a remarkable surge across Europe, accounting for 8.6% of the western European market in the first quarter of this year, nearly double from the previous year, as reported by automotive analyst Matthias Schmidt. Chinese automakers like BYD, Changan, Chery, Dongfeng, and Geely are now setting their sights on producing vehicles within Europe, considering both building new factories and acquiring existing, underutilized ones from struggling European counterparts.
The trend of European carmakers offloading their underused plants to Chinese companies is becoming more pronounced. Nissan is reportedly in negotiations to allow Chery to take over part of its Sunderland factory in England, after earlier selling a Barcelona facility to the same company. In a similar vein, Ford is said to have an agreement to sell part of its Valencia plant to Geely. Stellantis, the conglomerate behind brands such as Peugeot, Fiat, and Vauxhall, has proactively partnered with a Chinese firm, announcing plans for two of its Spanish plants to manufacture vehicles for Leapmotor.
For European car manufacturers, Chinese investment provides a much-needed solution to their challenges. The European market has contracted from 15.3 million vehicle sales in 2019 to under 13 million expected in 2025, compounded by U.S. tariffs impacting export sales. With excess factory capacity and the prospect of painful closures and layoffs, selling to Chinese rivals presents a more palatable alternative. However, Volkswagen brand chief Thomas Schäfer acknowledged the difficulty in finding suitable buyers, dismissing rumors about a potential new owner for its Dresden factory as unfounded.
Despite the challenges, Xpeng’s Cheng stated that a deal with Volkswagen remains on the table if a suitable European location can be identified, though building a new facility is also being considered. Meanwhile, European automotive executives privately express unease about the growing credibility and threat posed by Chinese manufacturers across all market segments, from mainstream to luxury. This evolving landscape underscores the complex interplay of competition and cooperation reshaping the industry’s traditional power structures.