Volkswagen is considering allowing Chinese carmakers to take over its surplus production lines in Europe as it faces declining demand and increasing competition from the same companies looking to expand their presence in the region. Executives at Audi and Volkswagen’s core brand have indicated that collaboration with Chinese electric vehicle (EV) manufacturers seeking to establish themselves in Europe is one potential strategy to address falling sales.

Audi has already partnered with SAIC, the company behind MG, to manufacture electric vehicles in China tailored for local consumers. The company believes Chinese brands may look to replicate such collaborations within Europe.

In a separate statement reported by the Financial Times, Volkswagen’s chief financial officer suggested that the possibility of Chinese carmakers taking over idle production lines at German plants could not be ruled out.

The prospect of such partnerships comes as European carmakers accelerate their own transition to electric vehicles. Chinese manufacturers such as BYD have gained an edge in the sector, benefiting from technological advancements, state subsidies, and lower production costs.

For years, China was Volkswagen’s most profitable market. However, in the past five years, the company’s market share has nearly halved due to its weaker position in the expanding battery-electric vehicle segment. The group has also faced challenges in its home market, where the automotive sector has contracted significantly. In 2024, 2mn fewer cars were sold in Europe compared with five years earlier.

In an effort to address these challenges, Volkswagen recently reached an agreement with workers to scale back production capacity across Germany, avoiding more drastic measures that could have led to the closure of at least three plants.

As a result, the Volkswagen brand, which accounts for approximately half of the group’s sales by volume, is set to reduce annual production capacity by around 730,000 vehicles by 2030, down from approximately 1.5mn. The company began cutting capacity during the pandemic, cancelling night shifts due to lower demand, with around 900,000 vehicles expected to be produced in Germany this year. This is where China and Chinese carmakers come in.

Some Chinese carmakers view surplus production capacity in Europe as an opportunity to expand within the region.

Stellantis, for instance, has acquired a 20% stake in the Chinese start-up Leapmotor, granting it exclusive rights to manufacture and sell Leapmotor vehicles outside China through a joint venture. If demand for Leapmotor vehicles increases, Stellantis could utilise its existing European factories to avoid politically sensitive closures.

Meanwhile, in support of potential Chinese moves, Audi has expressed opposition to the European Union’s decision to impose higher tariffs on Chinese electric vehicle imports, arguing that protectionist policies could ultimately harm its business; a reflection of China remaining an essential market for several non-Chinese carmakers, with many companies manufacturing vehicles in the Far East before importing them back to Europe.