As wary as European governments are of low-cost Chinese electric vehicles invading their markets, they are also competing fiercely to win a share of the manufacturing investment and jobs that new competitors bring.

As the European Union investigates Chinese subsidies to the auto industry and considers imposing tariffs on imports, the bloc's national governments are offering incentives to attract Chinese automakers who want to build factories in Europe.

Production costs for Chinese electric vehicle manufacturers, including BYD, Chery Automobile and state-owned SAIC Motor, are much lower at home, but companies remain interested in setting up in Europe to save on shipping costs and potential tariffs, said Gianluca Di Loreto, a partner at consulting firm Bain & Company.

"Chinese automakers know that their cars must be perceived as European if they want to generate interest among European customers," he said. "That means producing in Europe."

The EU's decision on tariffs is expected this week. On the one hand, import taxes could help European automakers be more competitive with their Chinese counterparts, but they could also spur Chinese automakers that are already investing heavily, and long-term, in Europe.

According to consulting firm AlixPartners, sales of Chinese brand cars accounted for 4 percent of the European market last year and are expected to reach 7 percent by 2028.

Hungary, which will produce about 500,000 vehicles by 2023, won the first investment in a European factory by a Chinese automaker, announced last year by electric vehicle giant BYD, which is also considering opening a second European plant in 2025.

Budapest is also in talks with Great Wall Motor for the company's first plant in Europe, according to local media reports, with the country offering money for job creation, tax breaks and relaxed regulation in targeted areas to attract foreign investment.

In recent years, Hungary has spent more than $1 billion to support new battery plants by South Korean groups SK On and Samsung SDI and Chinese battery giant CATL's project.

Representatives of BYD, Great Wall and Hungarian officials did not respond to requests for comment.

China's Leapmotor will use the production capacity of its French-Italian partner Stellantis, and Reuters reported that the pair chose the plant in Tychy, Poland, as their production base.

Poland has a number of programs that currently support more than $10 billion in investment, the country's Ministry of Development and Technology told Reuters, including one that encourages the transition to a zero-emission economy and another that offers corporate income tax breaks of up to 50 percent in regions with high unemployment.


Spain, Europe's second-largest car-producing country after Germany, has secured an investment from Chery, which will start production in the fourth quarter at a former Nissan plant in Barcelona together with a local partner.

Chery is expected to benefit from Spain's €3.7 billion program launched in 2020 to attract electric vehicle and battery plants.

China's Envision Group has already received €300 million in incentives under the program for a €2.5 billion battery plant that will create 3,000 jobs. Spain could also host Stellantis' planned fourth gigafactory in Europe with CATL.

Chery has plans for a second, larger plant in Europe, a source familiar with the company's plans told Reuters, and has held talks with several governments, including that of Rome, which would like to attract a second automaker to compete with Stellantis, Fiat's manufacturer.

Italy can draw on the national auto fund, worth 6 billion euros between 2025 and 2030, for incentives to both buyers and manufacturers. China's Dongfeng is among other automakers that have held investment talks with Rome.

The Italian Ministry of Industry preferred not to comment. Dongfeng and Chery did not respond to requests for comment.

SAIC, owner of the famous MG brand, plans to build two plants in Europe, two sources familiar with the matter told Reuters.

The first, based on an existing plant, could be announced as early as July and would use a kit assembly technique, aiming for annual production of up to 50,000 vehicles, one of the sources said. SAIC's second European plant will be built from scratch and will produce up to 200,000 vehicles a year, the source added.

Germany, Italy, Spain and Hungary would be on the list of sites selected by SAIC, according to the source.

SAIC did not respond to a request for comment.


In Europe, Chinese automakers face higher costs across the board, from labor to energy to regulatory compliance.

But the costs of exporting made-in-China cars can grow rapidly and threaten already slim margins.

A 15,000-euro car made in China requires shipping and logistics costs of between 500 and 3,000 euros, said Di Loreto of Bain & Company.

According to Di Loreto, Chinese automakers may find labor costs in northern Europe too high for competitive production, while further south Italy or Spain offer a balance of lower labor costs and relatively high production standards, particularly important for high-end vehicles.

For low-cost vehicles, Di Loreto said the most attractive locations are Eastern Europe and Turkey, which currently produces about 1.5 million cars a year, mostly for the EU, and has held talks with BYD, Chery, SAIC, and Great Wall.

Turkey's customs union with the EU and free trade agreements with non-EU countries guarantee the export of vehicles and components without tariffs.

(Translated by Camilla Borri, editing Stefano Bernabei)