In the current complex trade landscape, the decision for Chinese automakers to invest in building factories in Europe is inherently complicated and nuanced, akin to walking a tightrope. Amid intricate trade and geopolitical dynamics, how can Chinese car manufacturers entering the European market mitigate risks, maximize advantages, and maintain equilibrium? Leapmotor seems to be one of the companies managing this situation most adeptly.
Recently, multiple media outlets, including 'Automotive News Europe', reported that Stellantis CEO Antonio Filosa confirmed at an event that Stellantis' plant in Zaragoza, Spain, will become Leapmotor's European production base starting in 2026. Earlier this year, I discussed whether Leapmotor's strong start in Europe would be short-lived. In early April, Stellantis unexpectedly announced that assembly of the Leapmotor T03 at its factory in Poland's Tychy would halt effective March 30. Speculation pointed to political factors, suggesting that Chinese automakers took note of the stance of EU member countries regarding anti-subsidy tax votes when selecting investment destinations in Europe, with Poland having voted in favor.
There were already rumors that Leapmotor was considering Spain, which maintained a neutral position in the anti-subsidy vote, for its production site. The decision to shift production from Poland to Spain reflects Leapmotor's ability to explore alternatives. In 2023, Stellantis and Leapmotor announced a partnership, with Stellantis investing €1.5 billion for a 20% stake, while the two companies formed a joint venture named Leapmotor International with a 51% to 49% ownership ratio. This joint venture holds exclusive rights to export and sell Leapmotor products globally outside Greater China, as well as the exclusive right to manufacture Leapmotor cars locally.
This arrangement provides Leapmotor with a shortcut compared to other Chinese automakers venturing into Europe—capitalizing on Stellantis' established European sales network, after-sales services, automotive financing, and logistics, while also utilizing existing production facilities. The abandonment of Poland in favor of Spain indicates that Leapmotor has more options for avoiding political risks than its competitors. However, it also highlights the complexity and subtleties of the situation.
Leapmotor expertly navigates this intricate landscape, yet its advantages hinge upon Stellantis. The company plans to commence production in Spain in the third quarter of 2026, later than initially planned. Simultaneously, while the Tychy plant has ceased operations, Leapmotor International appears to be altering its product strategy. Reports suggest that Leapmotor has no plans to resume T03 production in Europe and is instead focusing on the compact SUV model Leapmotor B10. Despite the T03 having a competitive price as Leapmotor's initial offering in Europe, this sudden shift in product strategy raises the possibility that political considerations may overshadow commercial logic.
Another instance possibly influenced by political factors is BYD's decision to move its European headquarters from Amsterdam to Hungary. In May, BYD founder Wang Chuanfu announced plans to establish a European center in Hungary, expected to create 2,000 jobs and serve as a sales and service hub, a testing center, and a development center for localized vehicle versions. Moreover, BYD's first passenger car plant in Europe is located in Hungary, with production anticipated to commence this year.
Investment decisions are not solely birthed from political momentum but also encompass economic costs, local industry conditions, and investment policies. Taking Leapmotor as an example, Spain has demonstrated enthusiasm for Chinese car investments among EU member states. However, before finalizing its plans in Spain, Leapmotor also considered Stellantis' plants in Germany and Slovakia, both of which opposed the anti-subsidy tax, showcasing a clearer stance than the neutral position of Spain. The site selection process involves more than just political considerations.
Last year, CATL and Stellantis announced the establishment of a joint venture to build a large lithium iron phosphate battery factory in Zaragoza, with a staggering €4.1 billion investment, which likely influenced the choice for nearby production. The latest 2024 annual report on Chinese direct investment in Europe by Rongding Consulting and Mercator Institute for China Studies portrays this complex reality: Chinese investment decisions intertwine commercial, political, and structural factors.
As Chinese and European car manufacturers shift production to lower-cost regions such as Central and Eastern Europe, North Africa, and the Iberian Peninsula, traditional automotive hubs like Germany, France, the UK, and Italy are witnessing a decline in manufacturing. Rising energy and labor costs combined with stringent regulations in Western Europe are pushing automakers to adjust their investment strategies. While Germany and France have robust talent pools and strong R&D ecosystems, the balance is increasingly tilting towards alternative investment destinations.
In this context, if Chinese automakers continue to prioritize Germany and France over Southeast European markets for investments, unless driven by political motives, it would seem counterintuitive from a business perspective. The Rongding report notes that while Germany opposed the EU's anti-subsidy tax on Chinese electric vehicles during the critical October vote, direct Chinese investment in Germany hit a 15-year low in 2024, with several projects canceled in favor of more cost-competitive locales like Spain and Portugal.
Additionally, the German government is tightening scrutiny on foreign direct investments, especially from Chinese companies, further deterring Chinese investors. The report highlights that in 2024, Chinese foreign direct investment in the EU and the UK saw the first rebound since 2016, reaching €10 billion, an increase of 47%.
Despite challenges, Europe remains a significant destination for Chinese investments in high-income economies, accounting for 53.2% of Chinese FDI in such markets. In 2024, the share of the EU and the UK in China's total outbound investment grew to 19.1%, a notable increase since 2018. Notably, the combined share of the 'big three' European countries—UK, Germany, and France—dropped to just 20%, far below the average of 52% from 2019 to 2023. This decline reflects changes in investment patterns and a significant reduction in overall investment.
Conversely, benefitting from capital-intensive greenfield projects, Hungary claims 31% of all Chinese FDI in Europe, the highest among all countries. As Chinese automotive brands experience accelerated sales growth in Europe, they are poised to transition from import-based operations to localized production in this complex trade environment.