Europe’s Auto Sector Welcomes China Capital and Risks Washington Backlash

Chinese investment has become a significant source of capital for European automakers as they navigate a difficult industrial transition to electric vehicles, yet these same commercial ties are drawing scrutiny in Washington.

Europe’s need for investment is on a collision course with the United States’ emerging national-security concerns, providing another example of the unresolved tension between the two largest nations competing in global trade. Research by the Andersen Institute noted that companies will have to carefully assess where they sit on the fault lines of U.S.-China competition.

How the ties developed

Rhodium Group estimates that China’s EV-related investment in Europe reached approximately €7.1 billion in 2025, up from €2.9 billion in 2022. These flows have taken three broad forms that reflect both commercial pressures and strategic incentives.

The first is the acquisition of European component suppliers facing financial or strategic strain. Since the mid-2000s, Chinese firms have acquired or invested in more than 130 European automotive suppliers, including Ningbo Jifeng’s purchase of German interior manufacturer Grammer AG and Luxshare’s acquisition of cable producer Leoni. These transactions provide buyers with established engineering capabilities and long-standing customer relationships.

The second is the formation of joint ventures with European manufacturers managing a decline in combustion-engine demand.

At Renault’s Cléon plant in Normandy, production historically focused on gasoline and diesel engines. The facility is now being reshaped as Renault shifts toward electric motors. As part of that transition, Renault transferred its conventional and hybrid engine operations into a joint venture with Geely, one of China’s largest automakers and the parent company of Volvo Cars and Polestar. The venture, called Horse Powertrain, supplies engines to both parent companies and to third-party automakers worldwide. The goal is to keep those technologies commercially viable as global demand for combustion engines declines. For Renault, the arrangement offered scale and a long-term partner. For Geely, it provided manufacturing expertise and access to the European market.

A related but distinct pattern of collaboration moves in the opposite direction, with European manufacturers relying on Chinese partnerships to manufacture and sell electric vehicles. Stellantis holds a 21 percent stake in Leapmotor, a Chinese electric-vehicle producer, and plans to assemble Leapmotor models at existing European facilities.

The third form is direct capital investment in EV supply chains, which more than doubled between 2022 and 2025. European companies have sought partners and financing as the EV transition places pressure on legacy powertrain businesses. Chinese firms have sought production capacity, engineering relationships and distribution networks inside the EU’s integrated market, where competition is intense and domestic production capacity is substantial. Regional governments and plant managers have welcomed these arrangements to preserve employment and avoid the economic and political consequences of factory closures.

Why a European policy response is difficult 

In 2026, the European Union adopted new rules requiring each member state to maintain a national foreign-investment screening mechanism. Member states have eighteen months to implement the framework, and they retain considerable authority over individual investment decisions. EU automotive regulation has traditionally focused on vehicle safety, emissions, performance and market access rather than the nationality of investors or suppliers.

A policy approach modeled on the United States, such as restricting connected-vehicle software and hardware by supply-chain origin or prohibiting automakers above a foreign-ownership threshold, would face several constraints. Member states have divergent industrial interests. European supply chains rely heavily on Chinese-linked components and inputs. Disrupting partnerships that already support production at European plants could carry significant employment consequences. Europe’s policy tools remain substantial, but they are fragmented across national and EU authorities and are generally applied on a case-specific basis rather than as uniform supply-chain rules.

European governments still have options. National investment reviews, EU-level coordination, competition enforcement and the Foreign Subsidies Regulation all provide avenues for scrutiny. These tools are difficult to apply consistently across a sector that is already deeply integrated with Chinese capital.

The U.S. policy implications 

U.S. scrutiny of foreign automotive ties centers on the electronic and software systems embedded in connected vehicles, which transmit telematics, location information, and data on road and infrastructure conditions to servers operated by manufacturers and third-party providers. The Commerce Department’s March 2025 rule imposes phased limits on designated software beginning with model year 2027 and on specific hardware starting in 2030 to reduce exposure of personal and infrastructure data to foreign jurisdictions.

Because connected vehicles rely on continuous data services and over-the-air updates, regulators argue that firms subject to foreign adversaries could enable monitoring of individual movements or mapping of sensitive facilities and transportation networks. This risk is independent of where a vehicle is assembled or sold, which is why the rule focuses on the origin of particular technologies in the supply chain rather than the country of manufacture.

This heightened security focus coincides with a significant divergence in transatlantic policy. When the July 2025 One Big Beautiful Bill Act terminated the $7,500 Inflation Reduction Act consumer tax credit, Congress ended federal support for electric vehicles.

Europe moved in the opposite direction. The European Union kept its 2035 goal of eliminating new internal combustion vehicles and kept pushing its decarbonization plan forward. Within that gap, China emerged as an important commercial partner. Chinese companies provided battery technology, cost advantages, and scale. European manufacturers supplied engineering expertise, market access, and established production infrastructure.

On July 22, the Senate Commerce Committee advanced the Connected Vehicle Security Act of 2026, introduced by Senators Bernie Moreno and Elissa Slotkin. The introduced text would have prohibited certain connected vehicles when entities tied to a covered country held more than fifteen percent of specified equity, voting, board or control interests. The committee later advanced the bill with a substitute amendment, so the introduced threshold should not be treated as final. The bill has not been enacted.

Depending on statutory definitions and agency guidance, European firms with covered ownership or control ties, or with restricted connected-vehicle technologies in their U.S.-bound models, could face additional documentation, regulatory review or pressure to redesign supply chains. The precise effect would depend on the final text, available exemptions and agency implementation. A commercial partnership alone would not necessarily trigger a restriction. The legal question would turn on definitions of ownership, control and covered technology.

The broader question for Europe 

For European automakers, the issue is whether Chinese partnerships that support European factories could also create costly ownership, technology and supply-chain complications for vehicles destined for the United States. If Congress broadens its scrutiny beyond the technologies covered by the existing Commerce Department rule, European firms may find that commercial arrangements designed to stabilize production at home carry destabilizing consequences for exports.