Chinese car companies compete to enter Europe

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Author | Zhou Zhiyu

Chinese car companies are accelerating their strategies to enter the European market.

In the first five months of this year, in the EU, UK, and EFTA markets, the registrations of BYD, Chery, and Leapmotor increased by 145.2%, 316%, and 552.9% year-on-year, respectively. The growth rate of Chinese car companies in Europe is becoming hard to ignore.

Behind the high growth lies the factor of a low base. Compared to traditional brands such as Volkswagen, BMW, Mercedes-Benz, Renault, the absolute sales volume of Chinese brands in Europe is still limited, but their ways of entering Europe are changing.

After the EU imposed additional tariffs on China-made electric vehicles, Chinese car companies did not withdraw from Europe; instead, they began adjusting their products and production arrangements. According to Transport & Environment, in the first quarter of this year, the market share of China-made electric vehicles in the EU pure electric market fell from 22% in 2024 to 17%, but the share of Chinese brands in the European plug-in hybrid market has risen from 3% to 13%.

Tariffs have changed the entry approach, but have not eliminated Chinese car companies' opportunities in Europe.

BYD is advancing its passenger car factory in Hungary; Chery is entering Europe by leveraging local production in Spain; Leapmotor is expanding sales through Stellantis’s channels, aftersales, and manufacturing resources. XPeng adopts a different strategy: it uses intelligent driving and software capabilities as part of brand differentiation, assembles vehicles with Magna in Graz, Austria, and is evaluating expanding production capacity in Europe.

XPeng’s case is quite representative. It possesses intelligent capabilities accumulated in the Chinese market, yet in Europe it must face issues typical of the traditional automotive industry, such as dealerships, leasing, residual value, aftersales, and local production.

Chinese car companies venturing into Europe are no longer just shipping cars over. The bigger issue is how to sustain business in a mature, complex, and limited incremental automotive market.

Rising Barriers

Growth of Chinese car companies in Europe is more about redistribution of market share.

After consolidation in the past few years, since 2026, the European automotive market has recovered slowly, with sales still below 2019 levels. Local consumers have stable brand preferences, and automobile purchases are typically dependent on financial, leasing, and dealership systems. The rapid product launches, configuration competition, and direct sales models most familiar to Chinese car companies domestically cannot be directly transferred to Europe.

Europe is not a market waiting for new brands to fill a gap.

The differences in consumption mode are even more pronounced. In markets such as Germany, France, and the UK, leasing and financial solutions are crucial. Consumers are concerned not only with list prices, but also with monthly payments, financial costs, residual value after three years, and whether vehicle issues can be resolved quickly.

Whether a car can be delivered on time, proximity of service centers, and whether a used car can sell at a reasonable price—all affect purchase decisions. For new brands, whether the product can attract consumers is just the first step before the transaction.

This is also why Chinese car companies present different entry approaches in Europe.

BYD relies more on scale, supply chain, and self-built factories, hoping to dilute costs via local production and a product matrix; Chery brings multi-brand and plug-in hybrid products to Europe, utilizing Spanish local manufacturing to lower entry barriers; Leapmotor uses Stellantis’s sales and aftersales network to reduce the time required for new brands to set up channels from scratch.

These moves aim to decrease reliance on prior export models.

After the EU raised tariffs, shipping, inventory, and delivery cycles have all become more important. Pure electric vehicles remain the mainstay for Chinese brands entering Europe, but plug-in hybrids and range-extended products are regaining attention, reflecting issues such as European charging networks, long-distance travel, and winter range.

European consumers will not automatically accept Chinese brands just because they are successful in China. Brands need to rebuild trust locally, much of which comes from dealers, financial institutions, and aftersales centers.

In this competition, XPeng is a typical example. It lacks BYD's scale or Leapmotor’s access to European traditional automaker resources, but it can first attract users with intelligent features, then fill in channels and local operations.

XPeng started globalization in markets with high EV penetration such as Norway, Sweden, and Denmark. Later, it made Germany an important market, trying to enter the most mature and competitive center of the European auto industry.

According to official XPeng disclosures, in the first quarter of this year, XPeng registered 1,207 vehicles in Germany, a year-on-year increase of 179.4%.

This figure is not enough to change the German market landscape, but it shows XPeng has moved from finding consumers willing to try, to seeking operating models that cover large markets.

Intelligent Driving Knocks First

Chinese car companies entering Europe must give consumers a reason to buy.

Relying on low prices is not sustainable. Tariffs, shipping, certification, and local operation costs could quickly narrow the price gap between Chinese and European brands. XPeng hopes to establish a brand identity above price competition through intelligent driving, software, and hardware capabilities.

XPeng CEO He Xiaopeng, when asked about differences between XPeng and BYD's European market strategies on July 16 local time, stated: "XPeng and BYD are completely different companies; our market logic varies. BYD has its own path, but XPeng hopes to create something different in software and hardware tech, aiming to become a mid-to-high brand in Europe."

This approach has been validated in the Chinese market. China’s smart car market has pushed assisted driving from a feature in a few high-end models into wider price brackets. XPeng aims to bring the algorithms, data, and software capabilities accumulated in China to Europe, forming a distinctive brand memory apart from traditional automakers.

But upon entering Europe, intelligent driving first faces not user experience, but regulations.

He Xiaopeng mentioned: "Currently, automatic assisted driving in Europe requires the EU’s DCAS regulations to be implemented, and final safety factors, including data privacy protection rules, must be met."

According to Wallstreetcn, the EU is continuously improving regulations on vehicle safety, driving assistance, and automated driving; UNECE is also promoting regulatory frameworks for automated driving, connected vehicles, and driver assistance systems. The UN WP.29-approved DCAS UNR 171 series 02 regulations will take effect at the end of 2026.

Functions already realized by Chinese car companies in China cannot be simply adapted once via software for Europe. Vehicles require re-type certification; scope of function opening, data usage, accident records, and software updates must all meet local requirements.

European road environments also pose different challenges for algorithms. Cyclists, pedestrians, traffic signs, right-of-way relationships, and driving habits all differ from Chinese city roads. An autonomous driving team member told Wallstreetcn that European local R&D needs to address these differences while complying with rules such as GDPR.

Chinese car companies can bring hardware and algorithms to Europe, but cannot simply transplant Chinese road data, user habits, and accident-handling experience. For intelligent driving, local data collection, regulatory certification, and liability handling all increase R&D and operational costs.

Intelligent driving in Europe may not independently generate software revenue in the short term. XPeng currently mainly sells hardware and software bundled, and whether they will charge separately for software in the future is still under internal discussion—not yet an announced business plan.

Intelligent driving can bring consumers to showrooms, but cannot replace XPeng in certification, delivery, and aftersales. Attention brought by technology must ultimately pass through European regulations and commercial systems.

This is why local production is becoming increasingly important. Cars are not just exported from China to Europe anymore; production, delivery, and supply chains must gradually move closer to local markets.

Factories Are Not Just Landing

Tariffs have turned local production from a cost option into a market entry requirement.

But the reality in Europe is that it is not short of car factories; what it lacks is orders that can fill these factories long term.

Data show that in 2026, Volkswagen’s German factories’ average capacity utilization will be about 81%; overall European car sales are still clearly below 2019 levels.

This provides opportunities for Chinese car companies, but also makes negotiations more complex.

Europe has mature factories, workers, and suppliers, so Chinese car companies needn’t start entirely from scratch. However, labor, energy, environmental, and employment costs in European factories are higher; unions and local governments have clear requirements for employment, investment, and output.

Chinese car companies want quick landing and lower costs; European stakeholders care whether factories can operate long-term, if local employment can be preserved, and if companies will continue investing.

Currently, Chinese car companies in Europe generally follow two approaches: one is building their own factories and controlling production and supply chains; the other is leveraging existing European capacity and channels to shorten entry time.

BYD chose to build a new energy passenger car factory in Hungary, aiming for greater control over production and supply chain. But Wallstreetcn has learned that due to recent policy changes in Hungary, the factory's completion timeline has been delayed compared to earlier estimates.

Chery entered Europe via a local production project in Barcelona, Spain, leveraging existing manufacturing bases and partnerships to cut down on setup time.

Leapmotor, through cooperation with Stellantis, uses existing manufacturing, sales, and aftersales resources in Europe to address the hardest gaps in entering Europe as a new brand.

XPeng currently assembles complete vehicles with Magna in Graz, Austria, following a route of first utilizing mature capacity before assessing expansion—a lighter and faster method.

He Xiaopeng revealed hopes for possibly multiple different manufacturing factories and R&D bases in Europe in the future, which may include not only automobiles, but also robots and other types.

XPeng is evaluating expanding European production capacity, including adding production lines or acquiring existing factories. Wallstreetcn learned from XPeng senior management that negotiations are underway with Volkswagen Group to acquire production lines.

Volkswagen stated in April it was evaluating possible entry of Chinese models into Europe or sharing some production capacity. Later, however, reports indicated no such negotiations.

Behind these statements, European factories are not empty spaces waiting to be filled. Behind factories lie employment, unions, suppliers, local governments, and brand control issues.

The EU proposed the "Industrial Acceleration Act" in March this year, sending a clear signal: Europe hopes to keep more manufacturing and supply chains locally.

Local production is not just to reduce tariffs and shipping costs. Factories, workers, inventory, and supply chains all require long-term local investment; delivery cycles, parts inventory, aftersales response, and dealer confidence are all affected.

If sales do not ramp up quickly, savings from shipping and tariffs can be quickly eaten up by labor, depreciation, and inventory costs.

How to Sustain Business in Europe

Selling cars in Europe, the challenge is often not the first deal.

Leasing and financial solutions are crucial in European car sales. The International Energy Agency notes that lease prices factor in vehicle depreciation, and stable residual value can reduce consumer risk of ownership and influence the pricing of lease and financial solutions.

The German market exemplifies this issue. IEA data shows that in 2025, German used EV sales will be about 400,000 vehicles, slightly over 6% of the used car market. After the used market grows, whether new brands keep residual value will directly affect subsequent new car sales.

A dealer familiar with the European market told Wallstreetcn: "Residual value is a very typical European requirement; brands must adopt a long-term perspective."

The dealer estimated that local auto sales rely on leasing and bank financing about 60% to 70% of the time. This doesn’t represent a unified Europe-wide ratio, but it shows German dealers are not just selling cars one-off—it’s a transaction involving inventory, finance, and residual value.

XPeng's German sales operations lead said dealers making money isn't the issue; what matters is motivation.

Dealers bear inventory, staffing, test drives, repairs, and customer complaints. If new brands can only provide short-term profits through manufacturer subsidies, dealers are unlikely to invest long-term.

Currently, XPeng delivers cars in Germany only after dealers pay; this reduces XPeng’s inventory risk but makes dealers tie up more funds. For dealers, car sales are only part of revenue; inventory turnover, repairs, maintenance, and used car transfers all factor in. How automakers and dealers apportion pressure will directly affect channel expansion.

At present, in markets like Germany, local consumers rely on familiar dealers. The above dealer noted German users’ assessment of products is direct; post-test-drive order conversion rate is higher than expected.

This means XPeng cannot rely only on online communication and launches to build its brand. German consumers compare chassis, range, assisted driving, aftersales, and residual value together, ultimately calculating a car’s three-year (or longer) usage cost.

Currently, XPeng’s channels in Europe include direct stores, dealers, and general agents. Different markets employ different modes, reflecting local auto industry structure: Germany needs dealer trust and service capability; Nordic markets are more receptive to new brands’ direct sales, while smaller markets may depend more on general agents.

Other automakers have no ready-made answers either. BYD wants to scale up, Chery needs brand clarity, Leapmotor depends on continued orders from Stellantis, XPeng must prove intelligence translates into sales and residual value.

Regardless of the path taken, selling the first batch of cars is just the beginning. Many cars entering Europe in the last two years have not completed the full leasing cycle. When cars return to the used market, when dealers finish their first batch and decide whether to restock, when local factories start bearing labor, inventory, and depreciation—the real pressure will emerge.

Aftersales networks, parts, leasing solutions, and used car transfers all require gradual local market establishment. Headquarters can help new brands sell the first batch, but cannot long-term replace dealers, financial institutions, and used car traders.

Looking ahead, don’t just watch registration numbers. After the first batch is sold, will dealers restock? After lease maturity, how many used cars can be sold? When factories start running, are they profitable monthly? Adding up these numbers, it becomes clear whether Chinese car companies can gain footing in Europe.

Risk Warning and DisclaimerThe market carries risks; invest cautiously. This article does not constitute personal investment advice, nor does it take into account individual users’ special investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein fit their own circumstances. Invest accordingly, at your own risk. ```