By Stephen Wilmot

Jeep maker Stellantis said two of its factories in Spain would produce electric vehicles with China's Leapmotor, in a closely watched test case of collaboration between Western automakers and their fast-growing Chinese rivals.

The plan to manufacture Leapmotor EVs in Spain marks the first time a big Western carmaker has offered up European manufacturing facilities to a Chinese brand. The move could help Stellantis cut costs while also fueling fears that an influx of locally built Chinese EVs will turbocharge the already fierce competition in the European car market.

Chinese carmakers are rapidly taking market share almost everywhere apart from the U.S. -- where they are all but banned -- by offering advanced technology at low prices. How established automakers and policymakers respond to their rise is one of the hottest questions in the global auto industry.

Stellantis made an early bet that a partnership was the best way to compete. In 2023 it bought a 21% stake in Leapmotor -- then a somewhat obscure Chinese brand -- and set up a joint venture to sell its EVs outside of China. Leapmotor has since been one of the most successful Chinese EV makers, with sales more than doubling last year.

Extending the partnership to include local production would bring to Europe "world-class manufacturing of electric vehicles at affordable prices," Stellantis Chief Executive Antonio Filosa said Friday.

Under the agreement, a Leapmotor sport-utility vehicle will be produced at Stellantis' vast plant in Zaragoza, Spain, starting as soon as this year.

Other Leapmotor products could also be made at a smaller Stellantis plant near Madrid, starting in 2028, when the Citroën currently built there comes to the end of its run. Ownership of the Madrid plant would potentially then be shifted to the Stellantis-Leapmotor joint venture, the company said.

With car sales in Europe running well below prepandemic levels, automakers in the region have significant excess production capacity. Stellantis, which was created through the 2021 merger of Fiat Chrysler and France's Peugeot, has also lost market share in recent years, leaving it particularly affected.

The Zaragoza plant built 304,459 vehicles last year, according to data provider Marklines, down from 470,371 in 2019. Running factories below capacity increases the fixed cost of producing each car, a big problem in an industry with already thin margins.

Strong unions make it difficult and expensive for automakers to close factories in Europe, encouraging carmakers to look for partners to better use their plants. Meanwhile, Chinese EV makers are looking to expand in Europe, where their products can command higher prices than at home.

Spain has emerged as the epicenter of the partnership trend, with lower labor and energy costs than in Germany, the heartland of European auto production, and relatively cordial relations between Madrid and Beijing.

Ford Motor and Geely Holding are also in talks about a collaboration that could involve the U.S. carmaker sharing its factory in Valencia, Spain, with the Chinese automaker.

In Barcelona, a small plant abandoned by Nissan was taken over by a joint venture between Spanish startup Ebro EV Motors and Chery, China's top auto exporter. The JV has built more than 20,000 vehicles -- sold under the local Ebro brand using Chery technology -- since production restarted in late 2024.

But while sharing capacity with Chinese newcomers offers European automakers a way to cut costs, it doesn't address the industry's root problem: Europe has too many factories chasing too few car purchases.

"Investors will rightly fear what Stellantis (and others) selling or lending capacity to Chinese rivals means for the health of the European market in the midterm," said Oxcap analyst Stuart Pearson in a note.

European policymakers are also concerned that the assembly of Chinese cars in Europe using Chinese parts will erode local supply chains. In March, the European Commission proposed rules requiring cars to be built using a certain share of local components.

Stellantis said Friday it would form a purchasing alliance with Leapmotor through their JV to take advantage of combined scale and the lower-cost Chinese supply chain. But it also said Leapmotor cars would be manufactured in Spain "in line with Made-in-Europe requirements."

The partners are also codeveloping a small electric SUV to combine the design, brand and chassis engineering of the Western company's Opel brand with the Chinese partner's know-how in powertrain and electronics. The EV would be manufactured in Zaragoza, potentially starting in 2028, on the same production line as the soon-to-be-built Leapmotor SUV.

Stellantis has a separate joint venture with China's CATL, the world's largest battery producer, to build a multibillion-dollar plant next to its assembly operation in Zaragoza. Production is expected to start late this year or early in 2027.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

(END) Dow Jones Newswires

May 08, 2026 08:14 ET (12:14 GMT)

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