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International Market Report: European Automotive Sector Date: July 11, 2025 Prepared for: Chinese Automotive Export Companies Subject: Market Analysis and Strategic Entry/Expansion Plan for Europe

1. Executive Summary

The European car market in 2025 is at a critical inflection point, defined by a rapid, regulation-driven shift towards electrification amidst sluggish overall growth. While total new car registrations show minimal year-on-year growth of 0.1% as of May 2025 focus2move, this figure masks a dramatic internal restructuring. Sales of Battery Electric Vehicles (BEVs), Plug-in Hybrids (PHEVs), and Hybrid-Electric Vehicles (HEVs) are surging, collectively capturing over 58% of the market acea acea. Conversely, the market share for traditional petrol and diesel cars has plummeted to just 38.1% acea.

This transition presents a significant opportunity for Chinese exporters, who are already gaining traction. Chinese brands surpassed a 5% market share for the first time in Q1 2025, with BYD notably overtaking Tesla in European sales in April 2025 dw. Key opportunities lie in the affordable EV segment (under €25,000), the booming PHEV market, and in providing technologically advanced vehicles that challenge the value proposition of established European brands. Success will require a nuanced strategy focused on regulatory compliance, addressing consumer concerns like charging infrastructure, and leveraging a hybrid sales model.

2. Market Insights

Macroeconomic & Market Overview The European economy is navigating persistent geopolitical uncertainty and slower-than-expected growth, with GDP projected to rise by only 0.9% in 2025 focus2move. This has contributed to a stagnant overall car market, which totaled 6.05 million units through May 2025, a marginal 0.1% increase from the prior year focus2move. However, the market is highly dynamic, with significant variations by country; Spain, for example, defied the trend with 13.6% growth focus2move.

The Irreversible Shift to Electrification The market is fundamentally reorienting away from internal combustion engines (ICE).

• Hybrid Dominance (HEV): Non-rechargeable hybrids are currently the most popular choice for European consumers, capturing a commanding 35.1% market share. This reflects a consumer preference for a practical transition, mitigating concerns about charging infrastructure acea.
• BEV Growth: Battery-electric vehicles now account for 15.4% of the market, with over 701,000 units sold in the first five months of 2025 acea.
• PHEV Surge: Plug-in hybrids are experiencing explosive growth, with sales soaring 46% in May 2025 alone. They are seen as an ideal "best of both worlds" solution by many consumers evxl.
• ICE Decline: The combined market share of petrol and diesel cars has fallen to 38.1%, down from 48.5% in the same period of 2024, with petrol car registrations dropping 20.2% acea assetfinanceconnect.

Consumer Preferences & Unmet Needs While policy pushes for full electrification, consumer behavior is more cautious. The popularity of hybrids highlights widespread "range anxiety" and skepticism about the public charging infrastructure, which, despite reaching 1 million points, is still considered inadequate dw. A significant unmet need exists for affordable EVs, particularly models priced below €25,000, a segment where European manufacturers have been slow to deliver ioplus. Consumers also increasingly expect advanced digital features, connectivity, and flexible ownership models like subscriptions cities-today.

Competitive Landscape

• Incumbent Leaders: Volkswagen Group remains Europe's largest carmaker, holding a 25.9% market share in Q1 2025, followed by Stellantis and Renault best-selling-cars.
• Tesla's Decline: Tesla has faced significant headwinds, with sales plummeting 39% across Europe from January to April 2025, partly due to brand perception issues and increased competition dw.
• The Rise of Chinese Brands: Chinese manufacturers are emerging as a formidable competitive force. Their market share surpassed 5% in Q1 2025, and BYD's sales success demonstrates a growing acceptance among European buyers dw. This success is built on competitive pricing and strong product offerings in the EV space.

Regulatory & E-commerce Dynamics

• Stringent Regulations: The EU's regulatory framework is the primary market driver. The 2025 CO2 target of 93.6 g/km (average) forces manufacturers to sell more low-emission vehicles or face substantial fines mobilityportal. The path is set for a 100% zero-emission mandate for new cars by 2035 forbes.
• Supply Chain Localization: The EU is actively promoting supply chain resilience through initiatives like the European Battery Alliance and the Critical Raw Materials Act, aiming to localize battery production and recycling automotivelogistics europa. A "battery passport" will be mandatory from 2027, tracking materials and carbon footprint leadventgrp.
• Sales Channels: While traditional dealerships remain important for service and test drives, there is a clear trend towards hybrid sales models that combine online direct-to-consumer (D2C) platforms with physical "experience centers." B2B fleet sales are also a critical channel, as corporate fleets are under pressure to electrify rhomotion.

3. Strategic Recommendations for Chinese Exporters

Optimal Product Combinations

• Lead with Affordable BEVs: Focus on the sub-€25,000 compact and city car segment. This is a major market gap with high demand. Models like the BYD Dolphin have proven this strategy works go-e.
• Offer Advanced PHEVs: Capitalize on the booming demand for plug-in hybrids. Offer models with a competitive electric-only range (>60km), fast charging capabilities, and rich standard features to serve as a "bridge" product for consumers not yet ready for full BEVs.
• Compete with Feature-Rich HEVs: Given that hybrids are the largest market segment, offer competitively priced hybrid models (SUVs and hatchbacks) that outperform European rivals on standard equipment, technology, and warranty.

Positioning Recommendations

• The Smart Value Leader: Position your brand as the intelligent choice, offering superior technology, safety features (ADAS), and connectivity as standard, not as expensive options. This directly counters the pricing strategy of many European incumbents.
• Eco-Compliant & Transparent: Proactively market your compliance with all EU regulations, including the upcoming 2027 battery passport. Emphasize sustainable manufacturing and the use of recycled materials to build trust with environmentally conscious European buyers.
• Technology-Forward Innovator: Showcase advanced in-car infotainment, seamless smartphone integration, and innovative features like Vehicle-to-Load (V2L) or Vehicle-to-Grid (V2G) capabilities to establish a reputation for cutting-edge technology.

Pricing Strategies

• Aggressive Segment Entry: Price BEV and PHEV models aggressively to undercut key European competitors (e.g., VW ID series, Peugeot e-208) by 10-15% while offering a superior level of standard equipment.
• Target the Price Gap: Analyze the market for popular European models where the base version is poorly equipped. Introduce a single, high-spec trim level of your competing model at a price point that matches or slightly undercuts their entry-level price.
• Transparent, All-Inclusive Pricing: Adopt a "what you see is what you get" pricing model, common in D2C sales, to build trust and simplify the purchasing process, avoiding the complex and costly option lists of legacy automakers.

Preferred Sales Channels

• Hybrid D2C & Dealer Network: Implement a dual strategy. Use a direct-to-consumer (D2C) online platform for transparent pricing and ordering. Simultaneously, partner with established multi-brand dealer groups or open brand-owned "experience centers" in major cities for test drives, handovers, and after-sales service.
• Focus on B2B Fleet Sales: Create a dedicated fleet sales division to target corporate and rental car company clients. These clients are highly motivated by Total Cost of Ownership (TCO) and regulatory pressure to electrify, making them receptive to value-oriented EV and PHEV offers rhomotion.

Bundling or Upsell Tactics

• The "EV Starter" Package: Bundle the vehicle purchase with a home wallbox charger and professional installation service. This directly addresses a primary barrier to EV adoption and provides immense customer value.
• Battery-as-a-Service (BaaS): Consider offering a BaaS model where the customer buys the car and leases the battery. This significantly lowers the initial purchase price, making EVs accessible to a wider audience.
• Comprehensive Service & Warranty Bundles: Offer an industry-leading warranty (e.g., 7-10 years) bundled with a multi-year service and insurance package. This "peace of mind" offering is a powerful differentiator that builds long-term customer loyalty.