Europe's carmakers set course for managed decline

Volkswagen AG

15/10/2026 15:52

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Refiles to fix dateline, fixes hyperlink in second paragraph.
By Aimee Donnellan
PARIS, Oct 16 (Reuters Breakingviews) - At this year’s Paris Motor Show, two competing visions of the future were on display. On Sunday evening, Xpeng 9868.HK, one of China’s many EV upstarts, hosted clients at an event where Vice Chairman Brian Gu touted humanoid robots, driverless and flying cars. Across town, Volkswagen VOWG.DE CEO Oliver Blume, was presenting the German group’s affordable electric vehicles, while calling for more industry support, with giant excerpts of EU treaties pasted on the wall. Relying on Europe, however, may still leave the carmakers on the road to managed decline.
Blume's faith in Brussels makes sense. Pressure from Chinese carmakers is forcing the European Commission to take action to protect European champions. Chinese branded cars captured 9% of the European market in the first half of the year. AlixPartners, a consultancy, expects Middle Kingdom marques will account for 16% of wider European sales by 2030. BYD 002594.SZ illustrates the rapid rise of Chinese carmakers in Europe. Its market share in Europe has risen to 2.5%, more than twice what it was the previous year. It now often outsells Tesla TSLA.O and Ford Motor F.N.
The block in 2024 imposed tariffs on Chinese electric vehicles, and is now moving to close the loophole left from those levies by also tackling cars that pair a battery with a ​combustion engine. Such hybrids accounted for 44% of China’s auto exports to Europe in the first seven months of ⁠this year, according to the European Automobile Manufacturers' Association. Following on quickly from that, it should soon unveil rules that will subsidise cars made on the continent and penalise imports.
These measures may offer some relief, but are unlikely to fully contain the Chinese threat. Take hybrids. Brussels last week managed to persuade Beijing to limit exports of these cars to Europe to 350,000 units from December, compared with 302,000 in 2025. The EU expected Chinese imports to reach 800,000 without the cap. Yet the deal only lasts four years, and even during that period BYD and peers can then increase annual sales by 6% a year. They may also be able to sell more cars from hubs outside China, circumventing the limits.
The next strand of Brussels' defense are the "Made in Europe" rules. These would mean that cars have to have a minimum proportion of parts made within the bloc to qualify for national subsidies and tax benefits. The idea is that China’s carmakers will either lose share, or be forced to move production into European factories in order to qualify. That may ultimately push up their costs, blunting the current competitive edge that comes from cheap Chinese labour and energy.
But there are limits to the deal. To start, “Made in Europe” is not yet law, despite increasingly anxious calls from France’s president, Emmanuel Macron, and Germany’s chancellor, Friedrich Merz, to curb Chinese imports. Part of the problem is European countries can’t agree on what "Made in Europe" means. Hardliners such as France are pushing a strict interpretation, meaning only factories and suppliers within the EU’s 27 countries count. But Germany has suggested it wants to include states that have close economic ties including the UK. An EU-only approach, which looks increasingly likely, may be better for European jobs, but damage European carmakers’ existing supply chains and push up costs.
These disputes may soon be resolved. But the regime will take time to be passed into law, and for subsidies to apply, giving Chinese carmakers time to keep growing market share in electric vehicles without having to rush to set up new factories. This sentiment was clear from Stella Li, BYD’s most senior international executive, who said in Paris the Chinese carmaker is still shopping around for another location for a European factory and is still not mass producing cars from its Hungarian plant.
Moreover, Chinese groups are preparing for a pinch by moving up the value chain. In Paris BYD, Xpeng and Li Auto 2015.HK displayed ever more luxurious, larger cars, which may be less impacted by the Made in Europe rules. Xpeng’s G9L, its flagship SUV with massage chairs, will be sold in Germany for around €75,000, competing head on with BMW’s iX brand.
Europeans are fighting back, but also looking to the past. In Paris Citroen, owned by Stellantis STLAM.MI, unveiled an electric version of its iconic 2CV. The pitch is budget nostalgia. The car will be sold for a relatively affordable €15,000, including a removable picnic basket, and the design plays on younger buyers’ affection for their childhood family cars. But once again Europeans are targeting the wrong audience. Around 60% of new car sales in Europe are bought by companies and fleet managers who are more likely to want sleek SUVs packed with the latest tech rather than canvas-roofed throwbacks to the 1950s.
Nostalgia won’t solve European carmakers bigger problem: their relative lack of efficiency. Chinese groups have fewer brands, and can get them to market more quickly. Whereas groups like Stellantis or Volkswagen are struggling with underused factories and many aged brands. The German group is embarking on a big restructuring that will see it slash 100,000 jobs, but that may take time. Meanwhile Chinese players will continue to pull ahead in new technologies, such as solid state batteries. 
Investors are well aware of these potholes. Despite a wave of quirky new models and protection from Brussels, European carmakers are still trading at knockdown prices. VW is worth less than 4 times its expected earnings, per LSEG data, and Stellantis’s valuation has fallen from nearly 7 times to under 5 times in just one year.
In Paris, the contrast was stark. European carmakers pointed to their history as proof of their resilience and importance to the continent, while their Chinese rivals looked to the future. Xpeng founder He Xiaopeng talked about how his self-driving car had been cruising around Paris, teaching its software to handle narrower streets and less predictable drivers. Until European carmakers show they are ready for what’s next, the road will continue to narrow. 
     
Follow Aimee Donnellan on LinkedIn.

(Editing by Neil Unmack; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))