Chinese OEMs in Europe: The Opportunities and Challenges for Suppliers

Despite the imposition of tariffs on their EV imports, Chinese OEMs have continued to thrive in Europe. To take a few prominent examples, BYD, Chery and Leapmotor saw year-on-year EU registrations surge by 153%, 267% and 559% in Q1 2026. And Chinese carmakers’ share of the larger European market, including the EFTA nations and the UK, has risen to 7.3%, up from 3.7% in 2025.

This presence is likely to accelerate further as many Chinese OEMs move beyond export-led strategies to localise manufacture within Europe itself, either by establishing their own production facilities or embarking on joint ventures with existing European companies to build vehicles locally. 

One of the biggest OEMs, BYD, is poised to commence assembling vehicles at its new Hungary plant later this year, and is seeking out a second facility elsewhere on the continent. Chery, meanwhile, has partnered with Spanish carmaker EV Motors to manufacture vehicles in Barcelona. Two other Chinese OEMs to forge a relationship with a European company are GAC and Xpeng, which are producing cars at a facility in Austria in collaboration with contract manufacturer Magne Steyr.

A major motivating factor for the shift is to allow OEMs to avoid the EU tariffs on Chinese imports. Localised production will also help OEMs to bolster their reputation with customers in Europe and better prepare for potential regulatory changes in the automotive industry, with the EU currently proposing stricter requirements around local assembly and local content in order for vehicles to be eligible for public procurement and subsidies. 

While there are obvious competitive implications for native European OEMs, companies within the automotive supply chain should also be paying attention to the steadily transforming ecosystem.

Many OEMs will deploy CKD (Completely Knocked Down) and SKD (Semi-Knocked Down) logistics models during the initial phase of localised production. This makes logical sense: manufacturing vehicles in Europe using components from China allows OEMs to establish a local footprint quickly while minimising capital investment and operational complexity. 

Chinese OEMs will continue sourcing strategic systems such as batteries, electric drive units and key electronics from established Tier 1 and Tier 2 Chinese suppliers during this phase. However, their operations will still require extensive support from incumbent European suppliers across areas such as local logistics and warehousing, tooling and manufacturing services, quality assurance and cybersecurity compliance, and aftermarket services.

It should also be noted that Chinese OEMs are entering Europe without decades-old supplier relationships in the region. Unlike legacy European manufacturers, they aren’t tied to established sourcing structures, and this presents opportunities for agile suppliers capable of demonstrating quality, competitiveness and manufacturing flexibility.

Broader opportunities to supply component parts and software systems will emerge as OEMs transition from CKD/SKD models to increase localisation and seek European sourcing partners. However, forging lucrative connections may be challenging for incumbents, as Chinese automakers have built much of their competitive advantage through highly integrated domestic supply chains.

In areas such as batteries, power electronics, electric motors and software-defined vehicle architectures, Chinese suppliers often possess significant cost and technology advantages. As a result, European suppliers may face intense competition from Chinese Tier 1 and Tier 2 suppliers following their OEM customers into Europe. 

“The speed and flexibility expectations of Chinese OEMs are often underestimated, “ saysHorst Bardehle, automotive sector principal at Hampleton Partners. “European suppliers who succeed are typically those who can match not only cost levels but also fast decision-making and high engineering responsiveness. Other key differentiators are regulatory and compliance capabilities with respect to homologation, EMC and cybersecurity. Chinese OEMs will rely heavily on local expertise here, which creates a strong entry point for European partners.”

Horst also emphasises wider structural challenges that will come into play, saying: “There is uncertainty around the way trade policies will evolve, as EU discussions continuing around local-content requirements, battery sourcing rules and industrial policy. Suppliers investing to support Chinese OEM programmes must therefore remain alert to regulatory changes that could reshape OEM sourcing strategies.”

Such caveats and challenges notwithstanding, Chinese OEM localisation represents a hugely significant sourcing opportunity for incumbent suppliers, and those which engage early, understand Chinese decision-making processes and demonstrate a clear localisation value proposition will be best positioned to benefit. 

If you work within the automotive supply chain and would like guidance on how best to position your company within today’s rapidly-evolving M&A market, we’d love to talk. Reach out to Horst Bardehle directly to get the discussion started.

For more insights into the Autotech & Mobility market, and our expert commentary on  several other major tech sectors including Healthtech, Enterprise Software and Digital Commerce, you can download our free M&A market reports. Featuring insights from Hampleton’s experienced dealmakers, the reports lay out the most consequential trends within each sector, as well as discussions of valuation patterns and specific deals across key verticals. Don’t forget to subscribe so you never miss out when our next reports become available.

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