China and the European Union have reached a trade agreement that will cap Chinese hybrid vehicle imports into the bloc at 350,000 units per year, a move that is reshaping the export strategies of Chinese automakers and accelerating their shift toward local production in Europe. The quota, set to take effect in early December, will rise by 6% annually and remain in force for four years, according to Chinese media outlet D1EV.
Under the deal, Chinese-made vehicles are expected to see their share of the EU market fall from the current 12% to about 6%. The cap targets hybrid vehicles, which had been outside the scope of earlier EU tariffs on Chinese battery-electric vehicles (BEVs). Chinese customs data shows exports of hybrids to the EU's 27 member states surged to $7.5 billion in the first half of this year, up from $2.5 billion in the same period last year, and nearly nine times the $845 million recorded for all of 2021.
Local production accelerates
The quota is unlikely to halt Chinese automakers' European expansion, analysts say, but it is pushing them to build factories in the region. Li Yanwei, an adviser to the China Automobile Dealers Association, said the import cap "will definitely accelerate the process of localised production in Europe" for Chinese brands, noting that their best-selling models in Europe are large SUVs with healthy profit margins.
BYD executive vice president Li Ke said the company is evaluating the possibility of building a plant in France, adding to its already announced Hungarian factory, which is expected to begin production in the fourth quarter. BYD plans to add two more plants in Europe, with France a potential site. The company also aims to expand its European workforce to around 40,000 by 2030, up from more than 10,000 today, Li Ke said at the Paris Motor Show.
Xpeng is pursuing similar ambitions. The company's vice president Zheng Yeqing said it plans to expand European production to meet new EU local-content requirements. Magna currently builds Xpeng vehicles at a contract plant in Austria, but Zheng said that factory's capacity "cannot even meet" the company's needs. New capacity will be developed with European partners, either through new plants or by repurposing existing facilities, with a focus on mid-market models. Xpeng aims to sell 500,000 vehicles annually in Europe by 2030, which would surpass Ford and Opel in the region, according to chairman He Xiaopeng.
New models and charging push
At the Paris Motor Show, around 20 Chinese brands including BYD and Chery are displaying their wares, double the number from the 2024 edition. BYD unveiled the Atto 8, a seven-seat electric SUV with a 115 kWh battery and a WLTP range of 652 kilometres (405 miles). It is the first BYD model in Europe to feature the second-generation blade battery with flash charging technology, which can charge from 10% to 97% in nine minutes with a compatible charger. BYD plans to install 3,000 flash charging stations across Europe by the end of 2027.
The trade agreement also provides some certainty for Chinese exporters. China's commerce ministry said the quota arrangement, based on 2025 hybrid sales volumes, guarantees "export space and stable growth" for Chinese automakers and reduces the risk of trade friction. The ministry cited EU data showing the bloc imported 302,000 hybrids last year, up from 107,000 in 2024, and said China's quota will be no less favourable than that granted to other suppliers.
French President Emmanuel Macron said France and Germany are close to reaching an agreement to protect Europe's auto industry, which could help unblock stalled negotiations on new EU regulations. The talks have been complicated by differences between the two largest auto-producing nations in the bloc. Meanwhile, Volkswagen reported a 14% year-on-year drop in global deliveries in the third quarter, its steepest decline in more than four years, with China deliveries falling 39% in the quarter.
