Europe’s automotive industry is under growing pressure from China. European automakers are steadily losing market share to Chinese vehicle manufacturers and, in some cases, reporting significant financial losses. Europe’s political leadership should have anticipated this challenge and adopted policies to strengthen and protect the continent’s domestic auto sector.
For decades, European automakers dominated global markets through engineering excellence, powerful brands, and mastery of the internal combustion engine. That era is now under grave threat.
Chinese car manufacturers have rapidly evolved from niche exporters into major competitors in Europe. Today, Chinese vehicle brands account for roughly 10% of the European car market, up from just 3% two years ago. That increase represents one of the fastest market share shifts in the modern automotive industry. European automakers are feeling the consequences. Stellantis, the owner of iconic brands such as Fiat, Peugeot, and Maserati, recently reported a staggering $26 billion loss. Mercedes-Benz, long synonymous with European automotive luxury, is also experiencing declining sales across the continent. The trend is unmistakable: Chinese competition is steadily eroding Europe’s traditional dominance in automobiles.
The roots of this challenge stretch back decades. More than 30 years ago, China adopted a national industrial strategy aimed at dominating global manufacturing, including the automotive sector. By 2026, that strategy has largely succeeded. Although China accounts for roughly 19% of global GDP, it produces approximately 35% of the world’s manufactured goods, about double the share of the United States.
China’s success is not accidental. It reflects state-directed industrial policy in which the central government acts as a kind of national venture capitalist, providing subsidies, tax rebates, and financing support to manufacturers. These policies allow Chinese exporters, including automakers, to underprice competitors in global markets. In Europe, Chinese vehicles are often about 10% cheaper than comparable European models. With a foothold established in Europe’s auto market, China is now shifting its strategy from exports to local integration. Chinese companies are building factories inside Europe to avoid tariffs that can reach as high as 45%. BYD, one of China’s leading automakers, is constructing a $4.5 billion factory in Hungary and plans another major facility in Turkey. Both plants are expected to begin production by the end of this year. At the same time, Chinese auto parts suppliers are expanding into Eastern Europe, including new manufacturing operations in Bulgaria. This vertical integration strengthens China’s long-term competitive position within the European market.
China’s greatest advantage may be in electric vehicles. The country dominates global battery production, which represents the most expensive component of EVs and hybrid vehicles. That leadership provides Chinese automakers with a decisive cost advantage. In Europe’s EV market, Chinese brands already hold roughly 16% market share, and that number continues to grow.
The challenge for Europe is not purely economic. China has demonstrated a willingness to use manufacturing strength for geopolitical leverage. Its control over rare earth minerals has already been used to extract concessions from trading partners. In the automotive sector, China’s dominance in battery production and EV supply chains could eventually be used to influence European political decisions, nudging governments away from policies aligned with the U.S. and toward more China-friendly positions.
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Europe still has time to respond. Revitalizing the continent’s automotive sector will require a renewed commitment to competitiveness and industrial growth. Governments should reduce business taxes, particularly on manufacturers, and allow market demand rather than regulatory mandates to determine the pace of the transition from internal combustion engines to electric vehicles. Policymakers should also reconsider costly energy policies that raise production costs for manufacturers and consumers alike.
For the U.S., the lesson is clear. American leaders should recognize China as a strategic adversary and continue policies designed to prevent Chinese automakers from gaining a foothold in the U.S. domestic market. Protecting the U.S.’s industrial base, including its automotive sector, will remain essential in an era of intensifying global competition.
James Rogan is a former U.S. foreign service officer who later worked in law and finance for 30 years. He writes a daily newsletter on markets, economics, politics, and social issues.
