Europe lost the first round of the car business to China

According to EY, EU exports of cars and components to China fell by 34 per cent in 2025, to €16 billion. Imports from China, meanwhile, rose by 8 per cent, to €22 billion. In the space of a few years, what had once been a multi billion euro surplus turned into a deficit. The message from that reversal is fairly blunt: European manufacturers are losing pricing power in China, while Chinese carmakers are expanding their role in Europe’s value chain.

The shift looks most painful in Germany, long the main export engine of Europe’s car industry. German exports of vehicles and parts to China reached almost €30 billion in 2022, but by 2025 they had dropped to €13.6 billion. The flow in the opposite direction moved up at the same time, with imports of Chinese cars into Germany rising to €7.4 billion. Taken together, the IW study cited by Reuters and EY’s findings point in the same direction. Germany’s old strength in China is eroding faster than Europe’s premium brands seemed willing to admit even a few years ago.

This is not just a story about trade statistics. Europe’s own car market became far more receptive to Chinese brands in 2025. Data from Inovev, cited by Reuters, showed Chinese manufacturers doubled their market share in Europe to 6 per cent. In the UK, they climbed to about 11 per cent. In Spain and Italy, they reached roughly 9 per cent. Germany and France still remain more resistant, but the combination of lower prices, a broader model range and faster adaptation gives Chinese brands an advantage precisely in the segments where European manufacturers once relied on badge value to do the heavy lifting.

That success did not come down to low prices alone. Europe’s powertrain mix is shifting towards hybrids. ACEA data showed hybrids accounted for 34.5 per cent of all new passenger cars registered in the EU in 2025, while battery electric cars reached a 17.4 per cent share. This is where Chinese manufacturers read the market more accurately than several of their European rivals. They brought battery electric, plug in hybrid and full hybrid models to market at the same time, rather than betting everything on a single technological direction and hoping customers would fall into line.

The European Commission responded in late 2024 by imposing additional countervailing duties on electric cars built in China, with rates ranging from 7.8 per cent to 35.3 per cent depending on the manufacturer. BYD faced 17.0 per cent, while SAIC was hit with 35.3 per cent. But the measure applies only to battery electric vehicles. Reuters noted that hybrids and combustion engined models slip past that barrier, which helps explain why Chinese brands gained ground so quickly in markets such as Poland. Europe answered with tariffs. China answered by retuning its product mix.

Over the longer term, the outlook grows more serious still. S and P Global Mobility estimated Chinese brands held a 5.8 per cent share of the European market in 2025 and could rise to nearly 15.5 per cent by 2035. The same analysis suggested that by then, around 44 per cent of Chinese cars sold in Europe would already be built in Europe or Turkey. In other words, the next battle will not be fought over imports alone. It will be fought over local production, control of the supply chain and industrial policy itself.

That is why the turning point in 2025 means more than one ugly line in a spreadsheet. It suggests Europe’s car industry lost its pricing premium in China faster than it managed to build a new value proposition at home. If European manufacturers want to regain the initiative, they will need to move in three directions at once. They need to cut costs, shorten development cycles and build a model range that suits the electric and hybrid era without diluting what their brands actually stand for. Otherwise, today’s trade deficit will begin to look less like a setback and more like the early shape of permanent industrial dependence.