By Giulio Piovaccari
MILAN (Reuters) – European governments may be wary of the flood of low-cost Chinese electric vehicles into their markets, but they are also competing fiercely for a share of the industrial investment and jobs that new entrants bring.
As the European Union investigates China’s car subsidies and considers tariffs on imports, national governments across the bloc are offering their own incentives to attract Chinese automakers looking to build European factories.
Manufacturing costs for Chinese electric vehicle makers, including BYD, Chery Automobile and state-owned SAIC Motor, are much lower in the country, but they are nonetheless interested in establishing themselves in Europe to build their brands and save on potential freight and tariffs, said Gianluca Di Loreto, a partner at consultancy Bain & Company.
“Chinese carmakers know that their cars must be seen as European if they want to attract the interest of European customers,” he said. “That means producing in Europe.”
The EU’s tariff decision is expected this week. On the one hand, taxes on imports could help European car manufacturers better compete with their Chinese counterparts, but they could also encourage Chinese car manufacturers who are already investing heavily, over the long term, in Europe.
Sales of Chinese brand cars represented 4% of the European market last year and are expected to reach 7% by 2028, according to consultancy firm AlixPartners.
Hungary, which produced around 500,000 vehicles in 2023, secured the first investment in a European factory from a Chinese car manufacturer, announced last year by electric vehicle giant BYD, which is also considering a second European factory in 2025 .
Budapest is also negotiating with Great Wall Motor for its first European factory, local media reported, with the country offering money for job creation, tax incentives and relaxed regulations in specific areas to attract foreign investment.
Hungary has spent more than a billion dollars in recent years to support new battery factories from South Korean groups SK On and Samsung SDI and the planned factory from Chinese battery giant CATL.
Representatives for BYD, Great Wall and Hungary did not respond to requests for comment.
China’s Leapmotor will use the existing capacity of French-Italian partner Stellantis, with Reuters reporting that the pair have chosen the Tychy factory in Poland as their manufacturing base.
Poland has a number of programs currently supporting more than $10 billion in investment, the country’s Ministry of Development and Technology told Reuters, including one that favors the transition to a net-zero economy and another that offers tax relief. on corporate income, up to 50% in regions with high unemployment.
SPAIN, ITALY CHASE EV FACTORIES
Spain, Europe’s second-largest car manufacturing country after Germany, secured investment from Chery, which will begin production in the fourth quarter at a former Nissan factory in Barcelona with a local partner.
Chery is expected to benefit from Spain’s €3.7 billion program launched in 2020 to attract electric vehicle and battery factories.
China’s Envision Group has already received €300 million in incentives under the scheme for a $2.5 billion battery factory, creating 3,000 jobs. Spain could also host Stellantis’ planned fourth gigafactory in Europe, with CATL.
Chery plans a second, larger facility in Europe, a source with knowledge of the company’s plans told Reuters, and has held talks with governments including Rome, which is interested in attracting a second carmaker to rival Fiat maker Stellantis.
Italy can draw on its national automobile fund, worth €6 billion between 2025-2030, to obtain incentives for both car buyers and manufacturers. China’s Dongfeng is among several other automakers that have held investment discussions with Rome.
Italy’s Industry Ministry declined to comment. Dongfeng and Chery did not respond to requests for comment.
SAIC, owner of the venerable MG brand, plans to build two factories in Europe, two sources familiar with the matter told Reuters.
The first, based on an existing facility, could be announced as early as July and would employ a kitting technique, aiming for annual production of up to 50,000 vehicles, one of the sources said. SAIC’s second European factory would be built from scratch and produce up to 200,000 vehicles annually, the source added.
Germany, Italy, Spain and Hungary were on SAIC’s location list, the source said.
SAIC did not respond to a request for comment.
CONTROLLING COSTS IN EUROPE
In Europe, Chinese automakers face higher costs in everything from labor, energy and regulatory compliance.
But export costs for Chinese-made cars could rise quickly and threaten already thin margins.
Di Loreto, from Bain & Company, said that a 15,000 euro car produced in China requires transport and logistics costs of between 500 and 3,000 euros.
Chinese car manufacturers may find labor costs in Northern Europe too high for competitive production, Di Loreto said, while further south, Italy or Spain offer a balance between lower labor costs and relatively high manufacturing standards – particularly important for premium vehicles.
For low-cost vehicles, Di Loreto said, attractive locations include Eastern Europe and Turkey, which currently produces about 1.5 million cars annually, mainly for the EU, and has held talks with BYD, Chery, SAIC and Great Wall.
Turkey’s customs union with the EU and free trade agreements with non-EU countries guarantee tariff-free exports of vehicles and components.
(Reporting by Giulio Piovaccari; additional reporting by Giuseppe Fonte in Rome, Gilles Guillaume in Paris, Joan Faus in Barcelona, Anita Komuves in Budapest, Anna Koper and Marek Strzelecki in Warsaw and Can Sezer in Istanbul; writing by Giulio Piovaccari; edited by Brian Thevenot, Kirsten Donovan)
