China’s EV Makers Push Into Europe as Domestic Limits Tighten, but Rising Labor Costs Present New Challenges

BYD’s European sales surge 206% in one year
Low-cost strength rooted in labor and production efficiency
Doubts grow over Europe-based production plans

China’s electric-vehicle manufacturers are increasingly turning to overseas markets as domestic price wars intensify and earnings weaken. With U.S. entry effectively blocked by steep tariffs, Europe has emerged as a prime target given its strong purchasing power and steady EV demand. Major players such as BYD and Xpeng have accelerated efforts to establish production capacity in Europe while expanding lineups — including plug-in hybrids — to appeal to a wide range of consumers. Yet rising labor costs are now eroding the price competitiveness that underpins Chinese EVs, raising fresh questions about whether their overseas manufacturing push can deliver meaningful results.

Hybrid and EV penetration grows

According to the European Automobile Manufacturers’ Association (ACEA) on the 25th (local time), auto sales in Europe reached 1,091,904 units last month, up 4.9% from a year earlier. BYD sold 17,470 vehicles during the period, marking a 206.8% increase in just one year. As a result, its European market share more than doubled from 0.5% to 1.1%. SAIC sold 23,860 vehicles, up 35.9%, with its market share rising from 1.7% to 2.2%. This contrasts with the performance of South Korea’s Hyundai and Kia, which sold 41,137 units and 40,403 units respectively, with their combined share slipping from 8.0% to 7.5%.

Industry analysts noted the significance of Chinese automakers expanding into Europe, historically a stronghold of legacy brands. The Financial Times reported that while major European players remained tied to internal-combustion expertise, Chinese brands seized the moment by pairing aggressive plug-in hybrid (PHEV) strategies with low prices, winning over consumers. After the EU imposed tariffs of up to 45% on Chinese-made EVs, many Chinese companies shifted toward a PHEV-heavy strategy to bypass these barriers. The FT added that localized specifications — including price positioning and drivetrain characteristics — aligned closely with European preferences, accelerating market gains.

The growing presence of Chinese brands is also visible in their expanding retail networks. BYD previously announced plans to increase its European sales outlets to more than 1,000 this year and gradually to 2,000. It also adjusted its product lineup. The recently introduced “Atto 2 DM-i” features a combined driving range of up to 1,020 kilometers and a pure-electric range of up to 90 kilometers — specifications well-suited to Europe’s long-distance driving needs. Together, these elements are diversifying the battleground between Chinese manufacturers and established European rivals.

Low manufacturing costs reflected in retail prices

Price competitiveness remains central to explaining the momentum of Chinese EVs. The foundation is their cost structure across the entire production cycle. In 2014, China’s central government unveiled a 15-year science and technology plan that designated “low-emission, new-energy vehicles (NEVs)” as one of 62 priority areas. That year alone, it spent 14 billion dollars in industry subsidies. Related tax rebates provided since then are estimated to total at least 282 billion dollars. These extensive state supports sharply lowered manufacturing expenses, allowing automakers to price vehicles well below their global competitors.

Supply-chain economics have also favored Chinese automakers. As factories across the country expanded output, procurement costs for batteries, motors, and electrical components fell. Dedicated EV platforms further boosted manufacturing efficiency. Meanwhile, fierce competition among local governments and corporations to establish early leadership pushed labor and component costs even lower. Dan Sperling, director of the UC Davis Institute of Transportation Studies, noted that “price competition in China is so intense that subsidies almost look secondary.”

These cost advantages are evident in global automakers’ internal assessments. Volkswagen, headquartered in Germany, disclosed internal analyses showing that EV production costs in China are roughly half those in Europe. Based on this, the company has considered shutting down at least two of its German factories. Volkswagen Group CEO Oliver Blume warned that continuing to manufacture in Europe would inevitably weaken cost competitiveness, adding that the situation requires decisive action beyond incremental cost-cutting.

Will the cost advantage fade?

Armed with this formidable cost edge, Chinese manufacturers are accelerating global expansion. With the U.S. market effectively closed off by tariffs reaching 122.5%, Chinese automakers increasingly view domestic dependence as unsustainable. Their financial results underscore this challenge: Geely’s net profit in the first half of this year reached about 13 billion dollars, down 14% year-on-year; Great Wall Motor posted about 8.9 billion dollars, a 10% decline; SAIC and Dongfeng reported drops of 9% and 92% respectively; and GAC recorded a loss equivalent to about 3.5 billion dollars, marking a swing into the red.

As earnings across major firms faltered simultaneously, Chinese companies have turned to Europe — a market with strong purchasing power and relatively low resistance to Chinese EVs — as their primary breakout opportunity. To mitigate tariff risks, they have also begun building production bases within Europe. Xpeng started producing its G6 and G9 EVs at a Magna Steyr facility in Graz, southern Austria, while also operating an R&D center in Munich to develop Europe-specific models. BYD is constructing its first European EV plant in Szeged, southern Hungary, with plans to expand operations to Turkey and beyond.

However, such localization strategies come with a major tradeoff: higher labor costs. Because inexpensive labor has been a core pillar of Chinese EV affordability, shifting production to Europe inevitably pushes up costs and, by extension, vehicle prices. This directly conflicts with the low-price strategy that has enabled Chinese companies to rapidly expand market share. Additionally, tighter protectionist policies worldwide are narrowing the list of countries willing to host Chinese factories, making it increasingly difficult to assume that overseas production will remain efficient or advantageous.