China’s largest automaker, BYD, is considering Spain as the leading candidate for its third European factory — a move that could reshape competition in Europe’s electric vehicle market.
The planned assembly plant, which would join facilities in Hungary and Turkey, marks the latest phase in BYD’s rapid global expansion and its effort to outpace Tesla and Volkswagen on European soil.
According to people familiar with the matter who spoke to Reuters, BYD favors Spain because of its low manufacturing costs and clean energy network. The automaker has been scouting several sites across Europe, including Germany, but sources said the country’s high labor and energy costs have raised concerns internally. A final decision on the factory, expected before the end of the year, will need approval from Chinese regulators.
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BYD’s country manager for Spain and Portugal, Alberto De Aza, told Reuters last month that Spain would be an “ideal location for further expansion” because of its strong industrial infrastructure and access to cheap electricity.
His remarks reflect how diplomatic and business ties between Spain and China have warmed considerably in recent years. Spain, Europe’s second-largest car-producing nation, has also become increasingly attractive to foreign automakers after it announced a €5 billion plan in 2020 to draw EV and battery investments using EU pandemic relief funds. The plan has already brought in major investments from Volkswagen, China’s Chery, and battery giant CATL.
BYD’s interest in Spain signals its intent to deepen its footprint in Europe and avoid tariffs on Chinese-made vehicles. Reuters previously reported that BYD aims to produce all-electric vehicles for sale in Europe locally within three years — a move that will help it sidestep the European Union’s proposed tariffs on Chinese EV imports.
The Chinese automaker has enjoyed a meteoric rise in Europe. Sales jumped 280 percent in the first eight months of 2025 compared to the same period in 2024, as BYD expanded its offerings to include both plug-in hybrids and fully electric cars. Reuters noted that BYD recently overhauled its European operations, hiring more managers and expanding its dealership network to boost sales. Its Hungarian factory, which is still under construction, has seen its production timeline pushed to next year, while its Turkish plant is expected to open in 2026.
Spain’s emergence as the frontrunner for BYD’s next facility also carries broader geopolitical significance. Last year, Spain abstained from a European Union vote on tariffs targeting Chinese EVs — a decision that helped improve ties with Beijing. By contrast, Germany voted against the tariffs. According to Reuters, China’s government privately urged automakers to halt investments in countries that supported the tariffs, which has further strengthened Spain’s position as a preferred investment destination.
Analysts say BYD’s deepening presence in Europe could intensify competition for both Tesla and Volkswagen, the two dominant forces in the continent’s EV market. Tesla has struggled in Europe this year as its small, aging model lineup has faced growing competition from EVs launched by European and Chinese rivals.
Despite modest year-on-year gains in some countries — including a 2.7 percent increase in France and 20.5 percent in Denmark — Tesla’s European performance has been overshadowed by the influx of newer, cheaper models from Chinese automakers like BYD.
Volkswagen, on the other hand, has managed to maintain its foothold but faces its own challenges. The automaker recently reported a 1 percent increase in global deliveries, driven in part by European sales, though Reuters quoted Volkswagen executives warning that “the cost of producing both EVs and combustion engine cars and constructing battery cell plants weighed on earnings.” The German automaker expects only a “slight increase” in operating profit margins for 2025, underscoring the financial strain of adapting to an all-electric future while defending market share against lower-cost competitors.
For BYD, the European expansion is a calculated move to lock in supply chains, lower export costs, and cement itself as a local player rather than an external challenger. The automaker has publicly stated that it intends to make Europe one of its largest overseas markets within the next decade. If the Spain plant is approved, it would not only strengthen BYD’s production capacity but also give it strategic access to key European markets through Spain’s robust logistics network.
The broader implications are significant. As BYD’s presence grows, the competition for Europe’s electric vehicle market — already fierce — is set to intensify. Tesla, which once dominated Europe’s EV sales, now faces pressure from both ends: traditional automakers like Volkswagen are accelerating their EV transition, and new entrants like BYD are offering affordable alternatives. Volkswagen, meanwhile, must defend its home turf while balancing profitability and innovation costs.
Reuters’ factual reporting captures this shifting balance: “BYD’s sales in Europe jumped 280%… Tesla has struggled in Europe this year… Volkswagen reported a 1% increase in third-quarter global deliveries.” Those lines together reflect a quiet but powerful transition — one where China’s most valuable automaker is no longer content to export cars to Europe, but to build them there, right next to its competitors.