The mismatch is this: Europe has the manufacturing capacity to produce a lot more vehicles than consumers want. That is a problem, given the sector’s importance to the continent’s economy. The turnover created by the automotive industry contributes 7% of the EU’s gross domestic product and provides direct and indirect jobs to 13.8 million people, with 2.6 million of those jobs being in the direct manufacturing of motor vehicles. The situation has left the sector questioning how to prevent the collapse of one of Europe’s most important industries.
Aside from weak demand, the entry of Chinese electric vehicle (EV) companies into the market has long been another irritant to Europe’s auto industry. The industry has accused China of breaching trade rules by heavily subsiding the sector, enabling companies to provide prices that undercut domestic producers. Trade investigations from the EU followed the accusations, and in late 2024, the EU decided to impose sweeping tariffs on Chinese EV imports. The bloc justified the tariffs on two grounds: Chinese EV operators were able to undercut prices because of extensive and unfair state subsidies, and the tariffs would help protect the EU’s auto industry from low-cost imports that threatened the bloc’s industrial base.
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However, as these tactics have failed to bolster manufacturing, the EU has started pushing localisation laws as a way of enabling foreign companies to break into the market while providing jobs and investment that can help bolster local industry. These are a main feature of the latest proposal of the Industrial Accelerator Act and have become central to industrial strategies around the world.
This shift is now pushing some of the same Chinese EV manufacturers that had so irritated European automakers with the influx of cheap imports a few years ago to set down some roots. They are forming joint ventures (JVs) with local players, tapping into some of the spare manufacturing capacity, and some of the bigger companies are even committing to major greenfield investments or plant acquisitions.
However, whether investment from Chinese EV makers can provide a lifeline for the empty assembly lines plaguing once-bustling plants, is not so straightforward. European unions, who hold significant sway over the future of plants, have said they will welcome investment that protects jobs – on the condition that any changes comply with certain standards of engagement.
The numbers behind Europe’s spare manufacturing capacity
It is important to understand the extent of the problem for European automakers. Production in the continent has declined significantly in the past decade, and fast. In 2018, production was at 16 million vehicles per year, but by 2024, there had been a nearly 30% drop to 11.4 million vehicles, according to union group IndustriALL.
This shift has been notable in Germany, where legacy carmaker Volkswagen is on trend to size down significantly. In 2024, the company considered shutting down up to three factories. The move led to long negotiations with the IG Metall trade union, which averted the plant closures, while the two parties agreed to cut more than 35,000 jobs by 2030. However, just a year later, in December 2025, the German automaker announced it was shutting down production at its Dresden facility for the first time in the automaker’s history.
According to the European Association of Automotive Suppliers (CLEPA), the industry cut 54,000 jobs in 2024, followed by 22,000 in the first half of 2025. CLEPA communications manager Ulrick Lorck warned that the trend was likely to continue: “It is expected that more supplier plants could shut down than recorded so far,” he says.
Justin Cox, director of global production at LMC Automotive, tells Investment Monitor that the impacts from electrification transition costs, growing competition and increased protectionism have undermined vehicle demand sourced from Europe’s domestic automakers.
“The enduring step-change down in vehicle demand, since through pre-pandemic peaks, exerts big pressures upon Europe’s domestic auto industry to rationalise and ‘right-size’ its operations,” he says.
China’s overproduction led to export needs
As Europe has slowed its auto production over the past few years, China has been doing the opposite. The country’s strong push into industrial strategy has led to overproduction. It has caused a significant problem in China, with Beijing calling out local governments for providing too many incentives and gathering the country’s largest EV operators to tell them to stop producing at such high rates. Government support and low prices have also failed to generate sufficient local market demand to optimise plant utilitsation in the country.
This problem is what led Chinese EV makers to ramp up export and expansion efforts in Europe and other locations, which led to the anti-subsidy probes outlined earlier. While these trade barriers initially diverted exports and investments to alternative markets in Africa and the Middle East, Cox explains that companies found their way back to Europe.
“Given the challenges in the domestic market, China’s OEMs [original equipment manufacturers] are increasingly focused on electrified-vehicle exports, leveraging their technology and cost competitive advantrages,” Cox explains.
Could Chinese EV companies be the solution?
Some European OEMs are hoping that this localising push from Chinese operators can help rejuvenate or better utilise some of the existing ‘at risk’ manufacturing facilities.
However, they note that this localisation needs to be real. There has been some frustration about local content requirements being met through the use of assembly kits, which are imported from China and greatly decrease the amount of labour and capital investment needed locally.
“Increasing trade protectionism is an obstacle, however, with many Chinese OEMs aiming to overcome this by localising production sourced from ‘kits’ produced at home,” he says. “Securing sufficient local final assembly content to avoid import tariffs being levied, while still supporting meaningful factory output in China, then becomes the challenge.”
Jeremy Worlock, forecast analyst at GlobalData, tells Investment Monitor that low levels of local content are “prompting requests from Europe’s industry stakeholders to introduce ‘Made in Europe’ content thresholds”.
While bigger players like BYD might have the capital to invest in greenfield expansion, smaller operators are partnering with European companies. Chinese manufacturer Leapmotor has formed a JV with Stellantis for a plant in Spain that will have a production capacity of 450,000 vehicles per year. Chery has a JV with Spanish carmaker Ebro, Geely has one with Belgee as well as a rumoured one with Ford, and Polestar has two group plants with Volvo.
However, Europe’s influential unions have noted that investments and any changes in ownership and production have to include them as part of negotiations.
Georg Leutert, the head of automotive and aerospace industries for IndustriALL, a global trade union federation with 550 affiliates representing 50 million workers in an array of industries, told Investment Monitor that while investment is welcome, some of these changes can represent significant labour challenges.
“Our position is clear: no affiliated union in Europe will reject investment, including from Chinese companies, if it protects or creates decent jobs with union representation and collective bargaining agreements,” Leutert explains. However, given on-the-ground experience from affiliates in other locations such as Brazil and Indonesia, IndustriALL “has identified consistent patterns with some Chinese investors that give us serious cause for concern”.
“In a number of cases, companies have brought their own workforce rather than hiring locally, and the conditions for those workers have fallen well short of acceptable standards: poor accommodation and inadequate sanitary conditions in some documented instances,” he says. “This is not a generalisation; Volvo Cars, acquired by Geely, stands as a clear example of how Chinese ownership can work well for workers, with strong industrial relations maintained to this day in Sweden – but the variance is significant, and that variance is a real risk factor.”
BYD’s foray into Brazil highlights this friction. While the company has invested significantly in the country – launching the largest factory outside of Asia in Bahia state late last year – it has also been at the crosshairs of important labour standard breaches. One year before the opening of the Bahia plant, the country’s Labour Prosecutor’s Office suspended construction of a separate plant after finding workers were experiencing “slavery-like conditions”.
Earlier this month, the country officially put BYD on a registry of employers that have subjected workers to slavery-like conditions following the 2024 findings. The move carries reputational risk for BYD and bans the company from getting certain loans from Brazilian banks. It puts the central government in an awkward position, as BYD’s investments had been celebrated as foreign direct investment projects that hit important benchmarks such as creating jobs and contributing to the green transition. President Luiz Inacio Lula da Silva attended the opening of the Bahia plant last year.
The creation of JVs also poses unique challenges for unions, Leutert explains.
“In our experience, 50/50 structures tend to create accountability gaps; one partner deflects to the other when labour standard questions come up, and workers fall through the cracks. Where joint ventures are the chosen structure, unions need explicit recognition from both partners, not just the European one,” he says.
Much discussion around Chinese foreign investment now centres around how to limit it. In the Western Hemisphere, the US has made it clear it is willing to put pressure on its regional neighbours to ensure strategic assets such as ports remain in its sphere of influence.
However, in the case of the European auto sector, the match between struggling manufacturers, Chinese EV companies looking to break into the market and a rise in more strict localisation laws could help stave away the decline of the continent’s industrial base. As long as everyone gets a seat at the table, that is.
