Xpeng in talks with VW about buying a factory in Europe

XPeng Eyes European Manufacturing Expansion to Meet Surging Demand and Mitigate Tariffs

Chinese electric vehicle (EV) manufacturer XPeng is aggressively expanding its footprint in Europe, moving toward local manufacturing to sustain its rapid growth. As demand for its intelligent electric vehicles outpaces current production capabilities, the company is actively exploring new manufacturing locations on the continent to bypass significant trade barriers and optimize its supply chain.

The Strategic Necessity of Local Assembly

For XPeng, local European production is not merely a growth strategy—it is a financial necessity. The company currently utilizes a semi-knocked-down (SKD) assembly model at the Magna Steyr plant in Graz, Austria. This approach allows the automaker to circumvent heavy trade penalties imposed by the European Commission.

Since the imposition of additional countervailing duties on Chinese-built EVs in October 2024, XPeng has faced a 20.7% surcharge on top of the standard 10% import duty on finished vehicles. This results in a combined rate exceeding 30%, a cost that would significantly undermine the brand’s competitive pricing strategy without local assembly.

Current Production and Model Rollout

The Graz facility has become a cornerstone of XPeng’s European operations since assembly began in September 2025. The plant currently handles the assembly of several key models:

• G6 and G9 SUVs: Currently being assembled from SKD kits shipped from China.
• P7+ Sedan: This model completed trial production in January and is scheduled to enter series production in April.

Capacity Constraints Drive Search for New Locations

While the partnership with Magna Steyr has enabled a rapid scale-up, the current infrastructure is reaching its limits. According to Elvis Cheng, XPeng’s Managing Director for the UK and Eastern Europe, market demand has already exceeded the production capacity of the Graz plant.

“There is a kind of limit on the production capacity in this factory,” Cheng noted during a recent industry summit in London. To address this, XPeng is actively seeking a second European manufacturing location to ensure it can meet the continent’s growing appetite for its smart EV lineup.

Strengthening Ties with Volkswagen Group

XPeng’s expansion strategy is bolstered by its existing relationship with the Volkswagen Group, which holds a 4.95% stake in the company. The automaker is currently engaged in exploratory talks with its shareholder regarding potential European manufacturing opportunities.

These discussions represent a critical juncture for XPeng as it transitions from a Chinese exporter to a localized European player. Leveraging its relationship with major industry stakeholders could provide the manufacturing expertise and scale required to compete with established European automotive giants.

Key Takeaways: XPeng’s European Strategy

As XPeng continues to navigate the complexities of the European market, its ability to secure additional manufacturing capacity and maintain its partnership with Volkswagen will likely determine its long-term success in the region.