How do import tariffs compel Chinese automakers to localize production in Europe? Why are Chinese EV makers collectively pursuing localization in Europe—examining BYD’s factory leasing strategy and long-term opportunities for Chinese EV makers in Europe, based on Benchmark Global data.

In October 2024, the European Union followed the global trend of trade protectionism by imposing additional import tariffs on battery electric vehicles (BEVs) manufactured in China. To circumvent this trade restriction, multiple Chinese new-energy vehicle (NEV) manufacturers have adjusted their overseas expansion strategies—shifting away from simple整车 export models toward establishing local production capacity in Europe to secure their market share. Coincidentally, traditional European automakers are currently grappling with widespread underutilization of production capacity—a situation that aligns well with Chinese automakers’ needs for manufacturing facilities, thereby forming a mutually beneficial industrial cooperation framework. 03 European Automakers Mired in Crisis: Idle Capacity Has Become an Industry-Wide Pain Point Currently, major traditional European automakers generally face challenges of overcapacity and low factory utilization rates, placing significant pressure on overall industry performance. Volkswagen Group, aiming to cut operating costs, plans to reduce its global vehicle production capacity by one million units and officially announced in December 2024 its intention to scale back production capacity across Europe. Stellantis faces even more acute difficulties: the operational rate across its European plants remains consistently low, and the company has confirmed it will shut down its Poissy plant in France by the end of 2026. Overall, declining European factory utilization stems primarily from three objective factors: first, the regional automotive market size has yet to recover to pre-pandemic levels; second, high interest rates are suppressing household purchasing power, resulting in persistently weak demand for new vehicles; and third, European automakers’ pace of electrification transformation lags behind expectations, leading to severe redundancy in internal combustion engine (ICE) production capacity. 04 Win-Win Cooperation Model: Factory Leasing as a Symbiotic Solution to Industry Challenges Collaboration leveraging idle production capacity has become a widely recognized, cost-effective solution among Chinese and European automakers—and an optimal cooperative model aligned with both sides’ developmental needs. From the perspective of European automakers, leasing out idle production lines and factories helps monetize fixed assets and distribute operational costs, alleviating losses caused by overcapacity. From the perspective of Chinese automakers, the light-asset factory-leasing model requires lower investment and shorter timelines than building greenfield plants, while simultaneously bypassing tariff barriers and shortening supply chains—thus reducing overseas expansion costs. Volkswagen’s CEO has explicitly stated that hosting Chinese brands to produce within its own factories is a clever solution to its idle-capacity problem. Several Chinese automakers have already implemented such collaborations: Dongfeng Motor and Chery Automobile are both exploring leasing the second production line at Nissan’s Sunderland plant, while Nissan plans to consolidate both lines into a single operation by late 2026. Leapmotor’s collaboration with Stellantis is now operational: the T03 model has been mass-produced since 2024 at its Polish plant, and the B10 model is scheduled to begin production in Spain this October. XPeng has also initiated discussions with Volkswagen Group to explore possibilities for localized production in Europe. 05 Concentrated Capacity Deployment: Chinese NEV Makers Reshaping the European Landscape 2026 will be a pivotal year for Chinese NEV makers to consolidate their foothold in Europe. The concentrated rollout of localized production capacity will fundamentally transform previous export-driven overseas expansion models. Traditional whole-vehicle exports involve long supply chains, high costs, and tariff constraints—whereas localized production effectively avoids tariff risks, streamlines supply chains, and further amplifies the cost-performance advantage of Chinese-made vehicles. At present, Chinese automakers’ European production layouts are already taking shape: BYD’s new Hungarian factory is set to achieve mass production before the end of June; its Turkish production base is expected to commence operations within the year; and XPeng and GAC Aion have already completed commissioning of their Austrian factories.

[Automotive Insider] Volkswagen shuts down plants and cuts jobs—has the global auto industry fallen into a capacity crisis?

Upon announcement of the plan, tensions escalated sharply across stakeholders. The German Metalworkers’ Union was the first to respond, adopting a firm stance against the reform. In its view, strategic missteps and operational difficulties should not be borne by frontline employees. The union has repeatedly issued strike warnings and firmly opposes uncompensated job reductions and workforce optimization measures. Beyond the union, German local governments have also adopted a cautious posture. Volkswagen’s four domestic plants not only support massive employment but also anchor regional upstream and downstream industrial chains—including parts suppliers and logistics services—making them pillars of local economic stability. The planned phased shutdown of multiple plants threatens local employment and macroeconomic fundamentals; consequently, local governments hold substantial reservations and concerns regarding this aggressive retrenchment reform. Faced with strong union opposition and local government apprehension, Volkswagen’s management remains resolute and shows no signs of backing down. Senior executives have repeatedly stated publicly that this sweeping capacity reduction and workforce streamlining is a necessary self-rescue measure to navigate industry upheaval and resolve operational distress—and an inevitable choice for long-term sustainable development. Historically, Volkswagen and Toyota have consistently ranked first and second globally in annual vehicle sales, occupying the top tier of the industry. In past cycles of market volatility and sectoral turbulence, Volkswagen managed stable operations through only partial adjustments and internal optimizations—never resorting to such drastic measures. This unprecedented, radical restructuring underscores the true state of today’s automotive industry. The Overcapacity Crisis Globally, Volkswagen’s operational pressures are not isolated—the issue of insufficient capacity utilization is afflicting numerous multinational automakers. BMW reported a 4.2% year-on-year decline in global vehicle deliveries in the first half of 2026 and has launched a global workforce reduction initiative, targeting 8,000 positions cut by 2027; several of its German assembly lines continue to operate below capacity. Mercedes-Benz saw a 6% year-on-year drop in global deliveries in the first half of 2026, with net profit falling 6.3%—marking a sustained weakening in profitability. Its overseas joint-venture plants likewise suffer from serious idle capacity. Stellantis’ overall European plant utilization rate stands at just 46%, with regional idle capacity reaching 3.5 million units. 2025 marked its first major annual loss since its merger, prompting the company to impair its electrification-related assets and deliberately decelerate expansion. In North America, Ford and General Motors have both shelved portions of their battery-factory expansion projects, scaled back investments in new-energy segments, abandoned earlier ambitious production targets, and realigned all planning with actual market demand. Amid supportive industrial policies worldwide, automakers are simultaneously retrofitting traditional ICE production lines and aggressively constructing new EV factories—resulting in capacity expansion far outpacing sales growth. In 2026, global automotive production capacity is projected to reach 135 million units, while actual annual sales stand at approximately 100 million—creating a supply-demand gap exceeding 30 million units, and pushing the global average capacity utilization rate to roughly 70%, well below the industry’s 75% profitability threshold. Meanwhile, globally commissioned and under-construction new-energy vehicle production capacity exceeds 35 million units, whereas actual global NEV sales in 2026 are estimated at around 24.5 million—leaving over 10 million units of idle capacity.

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