China’s Guangzhou Automobile Group (GAC) will manufacture its AION V electric SUV at Magna International’s Austria facility, the companies announced Thursday, marking the second Chinese EV brand in two months to use European contract manufacturing as a workaround for steep EU tariffs on China-made vehicles.

The move highlights a rapidly emerging strategy among Chinese automakers: if Europe won’t let them import cheaply, they’ll simply build inside European borders instead.

GAC Taps Magna’s Graz Facility for AION V Production

The GAC AION V will be produced at Magna Steyr’s flexible manufacturing facility in Graz, Austria, which can build gasoline, hybrid, and electric vehicles on shared production lines. The facility already produces vehicles for multiple automakers under contract manufacturing agreements.

GAC International president Wei Haigang said “Europe is a vital market in GAC’s global development.” The statement underscores Chinese manufacturers’ determination to maintain European market access despite regulatory headwinds.

Roland Prettner, president of Magna Steyr’s contract manufacturing business, said the company’s expertise will “allow automakers like GAC to localize production efficiently.”

Second Chinese Brand in Two Months to Choose Magna

This GAC announcement follows Magna’s September 2025 deal to build battery-powered models for XPeng at the same Graz facility. The pattern is becoming clear: Chinese EV manufacturers are systematically identifying European production partners to manufacture vehicles inside EU borders.

By producing within the EU, both GAC and XPeng avoid the bloc’s provisional tariffs of up to 37.6% imposed on China-made electric vehicles.

The EU introduced these tariffs in 2024, describing Chinese EV imports as a potential “flood of unfairly subsidized EVs.” European regulators argued that Chinese government support gave manufacturers an unfair competitive advantage in European markets.

Magna Becomes Gateway for Chinese EV Expansion

Magna International, a Canadian automotive supplier, operates one of Europe’s most sophisticated contract manufacturing operations. The Graz facility’s ability to produce multiple vehicle types on shared lines makes it particularly attractive for foreign manufacturers seeking European production capacity without building dedicated factories.

For Chinese brands, Magna offers immediate manufacturing capability, established supply chains, and most importantly, vehicles that qualify as European-made for tariff purposes.

Neither company disclosed production volumes, timeline for first deliveries, or pricing strategy for the European-made AION V.

EVXL’s Take

This is tariff circumvention as industrial strategy, and it’s working exactly as you’d expect when governments try to wall off markets from superior competition.

The EU’s 37.6% tariffs were designed to slow Chinese EV penetration of European markets by making imports prohibitively expensive. Instead, Chinese manufacturers are simply moving production inside European borders, using the continent’s own contract manufacturing infrastructure to render the tariffs irrelevant.

GAC and XPeng won’t be the last. Every major Chinese EV manufacturer is now watching this playbook unfold and calculating whether European contract production makes more sense than paying tariff premiums. BYD’s 40% sales surge while Tesla stumbles has already demonstrated Chinese brands’ willingness to establish international manufacturing footprints when market access demands it.

The irony is rich: Europe imposed tariffs to protect domestic automakers from Chinese competition, but those same domestic automakers are struggling with Porsche’s first operating loss in history, BMW production haltsen strategic retreats from EV commitments like GM’s delayed Silverado even with tariff protection. Now European contract manufacturers like Magna are generating revenue by helping Chinese brands circumvent those very protections.

What the EU failed to understand is that Chinese EV competitiveness isn’t just about subsidies – it’s about faster development cycles, better battery integration, and software-defined vehicle architectures that traditional automakers are still struggling to match. Moving production to Austria doesn’t change those fundamental advantages.

The real test comes when European consumers compare a European-made GAC AION V against struggling domestic alternatives. If Chinese brands can deliver comparable quality at competitive prices even with European labor costs, the tariffs will have failed completely at their stated objective.

Magna, meanwhile, is making the smartest play available: serving whoever can pay for manufacturing capacity. As traditional European and American automakers scale back EV production amid collapsing sales like Tesla’s 13% global plunge, Chinese manufacturers are filling Magna’s order books instead.

The EU can build tariff walls as high as it wants. Chinese EV manufacturers will simply walk through the front door, write checks to European contract manufacturers, and sell vehicles stamped “Made in Austria” instead of “Made in China.”

Six months from now, expect announcements from at least two more Chinese brands pursuing identical strategies. The only question is whether they’ll all choose Magna or spread production across multiple European contract manufacturers.