The European Union is raising its regulatory bar to disrupt a strategy Chinese companies have used for years — shipping Chinese-made parts to Europe, assembling them there and marketing the result as European-made. By requiring that research and development and core components also be sourced within Europe, the EU aims to achieve two goals at once: containing China while absorbing the competitiveness of its auto industry.
Germany and France agreed on the 16th to tighten "Made in Europe" standards to protect their auto industries, Hong Kong's South China Morning Post reported on the 18th. The two countries will limit eligibility for European-made status — which determines access to government subsidies and public procurement — to vehicles tied to the EU's 27 member states, and will require not only production within the bloc but also R&D activity that secures intellectual property.
The Industrial Accelerator Act proposed earlier by the European Commission requires that final assembly take place in Europe and that more than 70% of component value, excluding batteries, come from European sources. It also includes separate local production requirements for core components such as battery cells.
The Financial Times reported that Chinese cars promoted as manufactured in Europe are in most cases fitted with parts produced in China and then shipped to the EU for final assembly. European automakers and labor unions, the newspaper said, hope to protect jobs through partnerships with China while transferring Chinese know-how and intellectual property to the EU to strengthen supply chains.
Chinese cars, including electric, hybrid and gasoline models, accounted for 9% of new vehicle sales in Europe in the first half of this year. Consulting firm AlixPartners projects their share will rise to 16% by 2030, matching the combined share of South Korean and Japanese brands.
The EU has so far curbed the growth of Chinese cars through higher tariffs and import reductions. In October 2024, it imposed definitive countervailing duties on Chinese electric vehicles for a five-year period. On the 9th of this month, the EU secured China's agreement to cut hybrid vehicle exports to the bloc to 350,000 units a year, about half the current level. For China, cutthroat competition at home leaves no room for additional sales, and exports to the United States are effectively blocked. That leaves Chinese makers needing to adapt to EU rules to sustain volumes.
Chinese companies have been expanding production facilities in Europe in response to the tighter rules. In Spain alone, CATL, Chery and SAIC Motor have built new plants or acquired existing ones. Nissan's plant in Sunderland, Britain, will begin producing Chery vehicles next year, and Chery has also decided to set up an R&D center in Britain.
The latest tightening, however, is prompting Chinese companies to reconsider their strategies. BYD, China's largest electric vehicle maker, plans to start operations at a finished-vehicle plant in Szeged, Hungary, in the fourth quarter of this year, but may fail to meet European-made criteria depending on the share of parts brought in from China.
BYD had pursued a plant in Manisa, Turkey, worth about $1 billion (1.33 trillion won), but shelved the plan in June this year. Under the German-French proposal, cars produced in Turkey would not qualify as European-made. BYD is also considering building a new plant in France.