Brands like Volkswagen continue to fall, while manufacturers from the Asian giant circumvent tariffs by producing directly in Europe.
If you look at Volkswagen's chart over the last five years, it's hard to believe we are looking at Europe's largest automaker. Its preferred shares are trading at around 76 euros, the lowest level since July 2010, after losing nearly 70% from the highs reached in March 2021. Volkswagen is now worth less on the stock market than during 'Dieselgate', the scandal that sent its shares from 170 euros to below 100 in just a few weeks and came close to destroying the company's reputation a decade ago.
This time there are no rigged engines. The group's profits in China fell more than 80% over the last decade, global margins halved since 2021, and the brand dropped from first to third in the world's largest car market. The industrial empire suffers from too many factories, too many models and a lack of profitability. Too many factories, too many models and a lack of profitability. How has one of the world's largest industrial empires come to discuss which plants to close?
The usual explanation points to expensive energy, German wages, Brussels bureaucracy and emissions regulations that forced billions in investment before the market was ready. All of that has raised costs, but the latest figures add a much more serious problem. Volkswagen sold 8.6% fewer cars in the second quarter and its deliveries in China plunged 36.6%. BMW did not escape either, with global sales down 4.9%, while in China they fell nearly a third.
China has ceased to be the engine for German brands. For two decades, the expansion of its middle class allowed them to sell more units there with higher margins than in the domestic market. The exchange model where European plants exported engineering while Beijing bought has ended. Chinese brands build their own vehicles, lower prices, export to the traditional markets of their former rivals, and are now set to manufacture them on European soil.
Europe reacted late to the change
For a century, Europe built its advantage around the combustion engine. A manufacturer could take years to perfect a platform because the customer paid for mechanical engineering, reliability, safety, and brand. The big German brands did not need to have the best screen on the market, but to build a car that still worked when others began to fail.
The electric vehicle has shifted much of that advantage toward the battery, software, electronics, charging speed, and price. European and US manufacturers typically work with development cycles of 40 to 80 months. Some Chinese companies can launch a model in under 24. And if a brand takes five years to respond to a rival that refreshes its range every two, the European car can arrive at the dealership with outdated technology and a higher price.
China no longer needs to bring the car by ship
The stagnation of domestic demand in China accelerates the foreign offensive. Domestic passenger car sales fell 23.4% in June and have posted nine consecutive months of declines, forcing the country's manufacturers to redirect their excess capacity to the European market. Brussels tried to contain that avalanche with tariffs on electric vehicles made in China. What are Chinese manufacturers doing? Starting to produce in Europe.
BYD's first European plant will begin production in Hungary during the fourth quarter of 2026, while it is studying acquiring an existing plant in Spain or France to accelerate its expansion. Its sales in Europe grew 270% in 2025, reaching nearly 188,000 vehicles, and surpassed 100,000 units in just the first five months of this year.
Spain is already part of this landing. Chery controls 40% of the joint venture with Ebro that manufactures at the former Nissan plant in Barcelona. Four models of the Spanish brand are already assembled there, and production of Chery vehicles is expected to begin at the end of 2026 or during the first quarter of 2027. The project aims to reach 150,000 cars per year by 2029 and would allow Chery to avoid European tariffs applied to electric vehicles imported from China.
SAIC, owner of MG, has also chosen Ferrol to build its first factory within the European Union. The plan involves an initial investment of about 200 million euros, 1,000 direct jobs, and a capacity of up to 120,000 cars per year. The plant still needs government approval and would not begin operations before 2028, but the direction of movement is clear.
The Chinese car can stop coming from China. It can be built in Hungary, assembled in Spain, use European suppliers, and hire workers who previously produced for a Western brand. It can also avoid some of the tariffs designed to curb imports and present itself to governments as an investment capable of saving industrial jobs. Volkswagen and the big European brands discuss whether their respective countries can maintain all their capacity and jobs, while BYD and its Chinese competitors ask which factories they can buy.
