How Unstoppable Are China’s EV Exports?

Natixis CIB Thematic Research is launching an Electric Vehicle Quarterly series to track the transformation of the automotive industry and its implications for growth, trade, investment and corporate profitability.

Authored by Valentin Mory, Gary Ng, and Jiayu Huang, each edition combines market, technology and regulatory updates, as well as a chartbook of demand and production data.

The inaugural issue examines Chinese carmakers’ rapid overseas expansion and Europe’s subsequent response. Interview.

The surge in Chinese EV penetration in Europe is driven by key domestic pressures in China combined with favorable market conditions in Europe. Characterized by dwindling first-time buyers and a halving of tax relief in 2025, China's weak domestic demand no longer absorbs production capacity as fast as it is built. This has left Chinese manufacturers grappling with a low domestic capacity utilization rate of just 71%. The resulting persistent overcapacity has forced an accelerated overseas export push to keep factories running.

Conversely, European EV adoption continues to accelerate, with battery electric vehicle (BEVs) and hybrid electric vehicles (HEVs) accounting for 32% of new car registrations in the first half of the year. This demand is fueled by newly introduced purchase incentives across the continent, rising fuel costs, and rapid charging infrastructure rollouts - for instance, ultra-fast chargers now make up 11.8% of the network.

On the other hand, China's alternative export markets have narrowed. With the US eliminating federal tax credits and nations like Brazil (35%) and Mexico (50%) imposing prohibitive tariffs, Europe remains the most open and lucrative major market. Consequently, Chinese OEMs successfully absorbed much of Europe’s BEV growth.

The scale of China's dominance is unprecedented. By mid-2025, China displaced Japan as the world's largest vehicle producer. Chinese brands (including acquisitions) now produce 28% of all cars globally - surpassing Japan (26%) and Europe (22%) - while manufacturing nearly three-quarters of the world's EVs and controlling the battery supply chain.

However, the nature of the competition has evolved. Chinese brands are used to gaining market share overseas through lower prices, faster product cycles and increasingly competitive technology. Realizing that relentless domestic price wars and razor-thin margins are unsustainable, Chinese brands are moving beyond entry-level models.

In addition, Chinese regulators recently issued guidelines urging overseas-bound OEMs to adopt fair trade practices and ensure export pricing reflects actual production costs. This aligns with ongoing EU discussions aimed at tightening import conditions.

Indeed, the five-year agreement signed last Friday - by which China has agreed to cap its hybrid vehicle exports to the EU at 350,000 units annually - is a significant tactical development in a long-standing negotiation process. Starting this December, it will effectively limit Chinese OEMs to capturing no more than 3% of the EU market through their hybrid vehicle offerings. As part of the deal, China has also agreed to ease restrictions on rare earths licensing, drop some tariffs on car parts and cut duties by half on footwear, olive oil and ice-cream from the EU.

In our opinion, by agreeing to this cap, China has bought valuable time while providing immediate relief to European automakers and suppliers. In a technology segment that Chinese manufacturers have strongly favored, since it was previously exempt from tariffs, unlike Chinese BEV imports. It also enables Chinese OEMs to continue selling their BEVs without being subject to stricter trade tariffs.

Crucially, however, the quota does not apply to Chinese vehicles assembled within the EU, leaving a strategic gateway open for Chinese technology to remain highly competitive on European soil.

Chinese OEMs are now positioning themselves on high-end, premium vehicles (priced above RMB 300,000) packed with advanced technology. By offering feature-rich premium models at highly competitive prices, they are directly challenging the historically resilient pricing power and margins of European premium brands.

This adds pressure on European legacy brands, but they are not down for the count. While the rapid influx of Chinese competitors has compressed margins, triggered painful restructurings, and placed credit outlooks under negative watch, profitability remains an uphill battle for Chinese OEMs as well. The Chinese EV sector has largely operated at a loss, heavily reliant on state subsidies, with only a select few players actually breaking even.

Survival for European OEMs will depend on a shift in strategy. The years 2026–2027 look like an inflection point, as European manufacturers are currently exiting a heavy capital expenditure cycle. From 2026 onward, lower spending on software and manufacturing should provide meaningful support to free cash flow. Operating margins, however, will depend more on restructuring efforts delivering results and on BEV offerings reaching critical scale from 2027 onward.

Protectionism alone will not save European automakers. The most viable long-term solution for both Western legacy brands and Chinese players seeking global scale lies in intellectual property transfers and deep partnerships.

Collaborative models - such as capacity sharing, joint product development, or shared supply and distribution networks - will allow European players to integrate Chinese technological efficiency and cost-advantages, while helping Chinese brands embed themselves more deeply in Europe’s local industrial base, distribution channels, and after-sales networks.