Chinese automaker Xpeng is actively seeking to establish a manufacturing base in Europe, while German giant Volkswagen is looking to streamline its factory operations. This scenario seemed to present an ideal opportunity for collaboration. However, Xpeng’s managing director for north-eastern Europe, Elvis Cheng, pointed out a significant issue with the proposed facility: “It’s a little bit, I would say, old.” This candid assessment of Volkswagen’s plant, voiced at a recent conference, may lead to some tension between the two companies, especially given that Volkswagen is a stakeholder and technology partner of Xpeng.
Cheng’s comment highlights a broader trend in the global automotive industry, where European car manufacturers appear to be on the defensive, while Chinese brands are aggressively expanding their presence. Chinese car sales have been on the rise across Europe, with imports making up 8.6% of the western European market in the first quarter of the year, almost twice the percentage from the previous year, according to automotive analyst Matthias Schmidt. Chinese companies such as BYD, Changan, Chery, Dongfeng, and Geely are eyeing production opportunities in Europe, either by building their own factories or acquiring existing, underutilized ones from European manufacturers.
In response, European carmakers are exploring ways to divest some of their excess capacity. For instance, Nissan is negotiating with Chery to allow them to use part of its factory in Sunderland, England, after previously selling a Barcelona plant to the same company. Ford is reportedly in discussions to sell a portion of its Valencia, Spain plant to Geely. Stellantis, which owns brands like Peugeot, Fiat, and Vauxhall, has been proactive in partnering with Chinese companies and recently announced that two Spanish facilities will manufacture vehicles for Leapmotor.
For many European manufacturers, Chinese investment offers a solution to their challenges. The continent’s car sales have decreased from 15.3 million in 2019 to less than 13 million projected for 2025, exacerbated by US tariffs impacting exports. Selling factory space to Chinese competitors helps avoid plant closures and massive layoffs. However, Volkswagen’s brand chief executive, Thomas Schäfer, acknowledged the difficulty in securing buyers, dismissing rumors about a new owner for its Dresden plant as unfounded, stating: “I don’t have anybody knocking on the door.”
Despite these challenges, Xpeng’s Cheng mentioned the possibility of a future deal with Volkswagen if a suitable European location is found. However, it’s just one of several avenues being considered, including constructing a new facility. Behind closed doors, European automakers express concern over the competitive threat posed by Chinese manufacturers, with one executive describing them as “very credible” competitors across all market segments, from mass-market to luxury vehicles.