Chinese Brands Threaten Eight European Car Factories

The European automotive industry is facing a profound restructuring that could lead to the closure of up to eight plants in the next five years, according to consultancy firm AlixPartners. The reason is attributed to weak vehicle demand and increasing competition from Chinese manufacturers such as BYD and SAIC Motor (MG).

Analysts indicate that European factories are currently operating at only 55% of their average capacity, a figure that jeopardises the sector's profitability. To break even, an average European plant should produce at least 250,000 vehicles annually, yet many facilities operate well below this threshold.

"European manufacturers will lose between one and two million vehicles to Chinese brands in the coming years," warned Fabian Piontek, director of AlixPartners in Germany. The consultancy estimates that Chinese automakers will achieve a 5% market share in Europe this year, potentially reaching 10% by 2030.

Stellantis, the group encompassing brands like Peugeot, Fiat, Citroën, and Alfa Romeo, is highlighted as the most exposed in the report. Its European operations run at just 45% capacity, placing it at the centre of cost-cutting pressures. The company declined to comment on the analysis but has already decided to halt six factories in the Old Continent, two of which are in Spain, to manage production and inventories.

According to the consultancy, closing a large factory with around 10,000 workers can incur a cost of 1.5 billion euros, along with one to three years of negotiations with labour committees. In countries like Germany, the law grants labour representatives a key role in decision-making within the supervisory boards of companies like Volkswagen or Mercedes-Benz, which can hinder or block closures.

The European market, meanwhile, has not returned to pre-pandemic levels. Passenger car registrations grew by just 0.9% in 2023, reaching about 13 million units, according to the European Automobile Manufacturers Association (ACEA). Despite this slight increase, sales remain well below the more than 15 million cars sold in 2019.

The rise of Chinese brands adds pressure to European capacity. If manufacturers like BYD, MG, or Geely manage to sell around two million cars annually in Europe by 2030, the continent could have about eight surplus factories, estimates AlixPartners.

"Closing a plant is not a decision taken lightly," the company notes. "It is a process that takes time, and executives need a clear narrative to justify that closure is the only viable option to secure the company's future."