Caution: Chinese Imports Impede European Automakers

With the Q2 earnings season underway, we believe now is a good time to take a more in-depth look at the dynamics shaping the European auto market and the outlook for the sector overall. Most prominently, May 2026 marked a potentially telling milestone for the sector as Chinese imports made up 10% of new car purchases in the European Union (EU) for the month, up from nearly 6% in May 2025.¹

For newer technology powertrains, the numbers are even more notable to us. 15% of all new battery electric vehicle (BEV) purchases in May were Chinese imports, versus 10% last year.¹ That number increases to almost 25% for new hybrids (including plug-in hybrids) bought during the month, up from almost 10% in May 2025.¹ This increase in purchases coincided with Chinese passenger vehicle exports jumping nearly 80% year-over-year worldwide.² This uptick in exported units was aided in part by lower electric vehicle incentives and weaker local consumption in China, coupled with overproduction by Chinese original equipment manufacturers (OEM).

The Price Is Right

In our view, European consumers are drawn to Chinese cars due to their advanced-technology features (e.g., advanced driver assistance and modern high-voltage charging systems) and more affordable price points. On average, these imports sell for approximately 20% less than their EU peers.⁴

Government policies play a role in these price discrepancies, in our opinion. In 2024, the EU implemented special tariffs (around 35% or less) against Chinese BEVs. However, plug-in hybrids remain untariffed (aside from standard EU import tariffs of 10%) and also benefit from local EU subsidies for lower emission vehicles. Meanwhile, local EU OEMs are struggling to compete against these products due to high regulation, taxes and labor costs. We note that many European automakers are pushing for less stringent emission regulations from the EU to buy themselves time. 

As for the United Kingdom (UK), no special tariffs against Chinese cars of any sort currently exist, helping Chinese automakers capture roughly 15% of 2026 new car purchases in that market through May.⁵ In general, Chinese companies are most successful in the UK, Italy and Spain and are gaining ground in France and Germany, from our observations.

Traffic Ahead

Volkswagen and other EU automakers have announced yet another round of plant rationalization and restructuring, but we doubt this will be enough to fully offset sector profitability headwinds. As a result, we believe the fundamental outlook is deteriorating. We now look to the rest of the year for updates on how OEMs may try to counteract these competitive forces led by Chinese imports.