BYD, China‘s leading electric vehicle (EV) maker, is making a bold move into Europe, with its first assembly plant set to open in Hungary. This strategic decision comes as the European Union considers raising tariffs on EVs imported from China, making local production a smart and necessary play, reports The New York Times.

Racing Against Tariffs

The EU is poised to decide by Oct. 30 whether to increase tariffs on electric vehicles entering the bloc from China. These duties, which would be added on top of an existing 10 percent tariff, could range from 9 to 35.3 percent and remain in effect for five years. While these tariffs are significantly lower than the 100 percent tariffs imposed by the United States and Canada, they come at a critical time as Chinese automakers are eager to break into the European market.

BYD’s decision to build a plant in Hungary is a strategic move to sidestep these potential tariffs and secure a foothold in the European market. The plant, located in the leafy city of Szeged, near the country‘s border with Serbia, is already under construction.

Excavators have begun preparing the 740-acre site, with large concrete pipes and stacks of metal sheets standing ready. The cornerstone is set to be laid this fall, with production expected to start in 2025.

“They have very ambitious plans… And they obviously have a very strong incentive with the tariffs.” – Sandor Nagy, deputy mayor responsible for urban development in Szeged, Hungary

BYD’s European Dream

BYD has been actively raising its profile in Europe, working with distributors across 19 countries to offer electric and hybrid models. The company has also been sponsoring major events, such as the European Championship soccer tournament this summer, to increase its visibility and appeal to European consumers.

The Hungarian plant is just the beginning of BYD’s European expansion. The company plans to ramp up production over the next few years, creating thousands of new jobs in the process. This push is part of a broader strategy to get its cars onto the European market, despite the recent slump in demand.

In July, Turkey announced that BYD would build an assembly plant there, with production of battery-powered and hybrid cars set to begin in 2026. Turkey is not an EU member, but trade agreements mean that cars made there would not be subject to the tariffs. This move further underscores BYD’s commitment to expanding its reach and influence in the European EV market.

Not Alone in the Race

BYD is not the only Chinese automaker looking to establish a presence in Europe. Other Chinese companies, eager to convince Europeans that their cars are fun to drive and more affordable than models made by European companies, are also exploring ways to avoid the tariffs.

Chery, a Chinese car manufacturer, announced in April that it would begin producing electric vehicles in Barcelona, in partnership with Ebro EV Motors. Stellantis, whose European brands include Peugeot, Fiat, and Opel, announced in May that it was entering into a partnership with Leapmotor of China, with production of electric vehicles in Europe set to begin this fall.

Zhejiang Geely Holding, which acquired the Swedish automaker Volvo Cars in 2010, is also scouting for a possible production site in Europe. It owns Polestar, which is based in Sweden but produces its vehicles in China. Earlier this year, the company began making an SUV at a plant in South Carolina, which will also be used to supply the European market.

“Even if some in Europe turn against us, we will never turn against the European market.” – Victor Yang, senior vice president at Geely

The Bigger Picture

The moves into Europe come as deliberations about the tariffs head into their final weeks. Wang Wentao, China’s minister of commerce, is touring European capitals ahead of a meeting on Thursday in Brussels with Valdis Dombrovskis, the EU commissioner for trade.

EU officials worry that China poses a threat to Europe’s auto industry, which accounts for nearly 7 percent of the region’s economic output. They say that Beijing has not offered a solution that sufficiently addresses their concerns that years of government support have granted Chinese automakers an unfair advantage over their European peers.

Analysts believe that shifting production closer to the market will benefit both sides: The European auto industry would gain jobs and access to cutting-edge technology, while Chinese producers would save on tariffs and shipping costs.

“I don’t think it makes corporate sense from simply a profitability point of view to think you can supply the global car market from factories in China.” – Jacob F. Kirkegaard, a senior fellow at the Peterson Institute for International Economics

Chinese brands accounted for 3.7 percent of all electric vehicles sold in Europe in 2023, compared with 0.4 percent of market share four years earlier. That number is expected to climb in the next five years, as more Chinese automakers establish production facilities in Europe.

A Growing Presence

In February, BYD delivered around 3,000 cars to Bremerhaven, Germany‘s main car port, via a chartered vessel on its maiden voyage. Germany is Europe’s largest economy and its largest market for cars. But it also holds a special prestige for China. Germany’s top automakers — Volkswagen, BMW, and Mercedes-Benz — helped to develop the auto industry there through joint ventures formed with Chinese companies in the early 1990s.

But German consumers are traditionally conservative and deeply loyal to their brands. Berlin’s decision to abruptly cut subsidies toward the purchase of electric vehicles led to a nearly 37 percent drop in new registrations in the year through July, compared with the same time in the previous year.

That has not stopped Chinese automakers from trying to gain a toehold. Last week, several Chinese car manufacturers displayed their latest models at a trade fair in Frankfurt that is normally focused on automotive suppliers.

“So they say, ‘If you want to produce for our European market, you need to be in Europe.’” – Maarten Otte, the head of investor relations for Central and Eastern Europe at CTP, a logistics and industrial real estate firm

The interest in Europe is not just from automakers. More Chinese suppliers have arrived over the past several years to be closer to the assembly plants that purchase their products. Automakers such as BMW that rely on parts made by Chinese companies are concerned about the costs and the risks associated with shipping goods overseas and are looking to make their supply chains more affordable and secure.

The Hungarian government of Viktor Orban has pledged incentives to support the project but has not yet disclosed the amount. BYD did not respond to a request for comment.

Some analysts have drawn parallels between the situation playing out in Europe and Washington’s approach to Toyota and Honda, Japanese brands that invested heavily in production in the United States in the 1980s.

Political Tensions and Trade Wars

But despite attempts to shift the relationship from cooperation to competition, China remains Europe’s second-largest trading partner, after the United States, with bilateral trade worth 739 billion euros, or $814 billion, in 2023.

“All of these things combined produce an overall political situation where the national security-driven U.S. approach is certainly not desirable in Europe.” – Jacob F. Kirkegaard of the Peterson Institute

This is especially true in Germany, where automakers are heavily invested in China and, fearful of endangering their interests there, oppose the tariffs.

And during a visit to China last week, Pedro Sánchez, the prime minister of Spain — Europe’s second-largest car manufacturer — urged Brussels to reconsider its position, arguing that pursuing the tariffs would be harmful.

“We don’t need another war, in this case a trade war. I think we need to build bridges between the European Union and China.” – Pedro Sánchez, prime minister of Spain

EVXL’s Take

BYD’s move into Europe is a bold step forward for the global EV market. It’s not just about dodging tariffs; it’s about making electric vehicles more accessible and affordable. As we’ve seen with Tesla’s expansion, these strategic moves can reshape the industry and accelerate EV adoption.

BYD’s investment in Hungary and Turkey shows a commitment to the European market that goes beyond short-term gains. By setting up local production, BYD is not only avoiding potential tariffs but also creating jobs and contributing to the local economy. This approach could pave the way for other Chinese automakers looking to expand their presence in Europe.

What do you think about BYD’s European adventure? Share your thoughts in the comments below!