The EU’s stringent carbon emission regulations are driving the acceleration of electrification, yet Europe faces a severe shortage of domestic production capacity for batteries, electric drive systems and smart components, coupled with slow technological advancement and a reliance on external supplies. In 2024, China’s exports of automotive components totalled US$93.43 billion, with Europe representing the core growth market.

I.Why accelerate now?

From ‘export products’ to ‘local roots’—the EU’s high tariffs (up to 45.3%), local content requirements (70% local production for non-battery components in electric vehicles), and the New Battery Act (covering carbon footprint, traceability and recycling) have effectively brought an end to the old model of ‘Made in China → Exported to Europe’, with local manufacturing now becoming a prerequisite for market access. 

Maturity of China’s Supply Chain + Cost Advantage China possesses the world’s most comprehensive new energy vehicle supply chain, with manufacturing costs 20–30% lower than in Europe. Furthermore, it has established a technological lead in areas such as battery energy density, autonomous driving algorithms and sensors, which aligns with European carmakers’ core objectives of reducing costs and accelerating their transition.

II. From Supporting Roles to Diverse Penetration

• Traditional supply chain exports

From the export of complete vehicles to the subsequent export of components, serving the European factories of Chinese car manufacturers (such as BYD and NIO). This model is characterised by passive supply, low value-added and a focus on trade. In the early stages, small and medium-sized component manufacturers exported items such as wheel rims, interior fittings and standard parts.

• Establishing production capacity

Establishing factories in Europe, recruiting locally and serving local car manufacturers, thereby entering the supply chains of major players such as BMW, Mercedes-Benz, Audi, Volkswagen and Stellantis, and transitioning from a ‘Chinese supplier’ to a ‘local European Tier 1 supplier’. 

Using Central and Eastern Europe (Hungary, Slovakia and Poland) as a bridgehead (due to low costs, favourable policies and proximity to Western Europe), whilst establishing R&D centres in Western Europe (Germany and Spain).

• Technology transfer

Technology licensing + joint ventures + solution provision: earn technology fees and long-term royalties without building factories, and secure a position at the high end of the value chain.

• Ecological permeation

With a fully integrated presence spanning R&D, testing, after-sales and local partnerships, we have evolved from a ‘parts supplier’ to a ‘technology partner’, forging close ties with European car manufacturers as they undergo transformation. 

BYD’s European headquarters in Hungary (comprising sales, after-sales, R&D and testing) collaborates on research with local universities.

III. Key Challenges

• Compliance barriers

EU REACH, PFAS restrictions and the Battery Regulation: with extremely stringent requirements regarding chemical traceability, carbon footprints and recycling systems, compliance costs for small and medium-sized suppliers are soaring, and they risk being forced out of the market.

Data compliance: Localised storage of autonomous/intelligent driving data and strict privacy protection; algorithms exported overseas must comply with EU regulations.

• Cost and operational barriers

The cost of setting up a factory in Europe is two to three times that in China; labour costs are high, and unit production costs rise by 15–20 per cent, which must be offset through automation and lean manufacturing.

Strong trade unions and strict employment regulations: redundancies are difficult to implement, benefits are generous, and cross-cultural management presents significant challenges.

Domestic giants (Bosch, Continental and ZF) continue to dominate the high-end chassis and traditional powertrain components markets, drawing on a century of technical expertise.

Japanese and South Korean companies (Samsung SDI and LG Energy Solution) have a clear first-mover advantage, and competition in the battery sector is fierce.