Chinese electric vehicle (EV) manufacturers are rapidly adapting to growing Western trade barriers, shifting their expansion focus to the Middle East and North Africa. According to a policy brief published by the European Council on Foreign Relations (ECFR) on March 26, 2026, titled “EV endgame: Stalling China’s export surge in Europe’s southern neighbourhood,” massive Chinese overcapacity and new manufacturing hubs in Europe’s southern neighbourhood pose an unprecedented challenge to the European auto industry. It has become clear: the EU’s current de-risking strategy alone is no longer sufficient.
State Subsidies and Drastic Overcapacity
Research by analysts Jonathan Fulton, Camille Lons, and Byford Tsang details the macroeconomic processes driving the aggressive global expansion of the Chinese auto industry. Massive state subsidies provided by Beijing and centrally directed investments have resulted in significant overcapacity in the Chinese domestic EV market.
The report substantiates the severity of the situation with concrete quantitative data:
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In 2023, the estimated production surplus in the Chinese domestic market was between 5 and 10 million vehicles.
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By the end of last year (2025), this brutal surplus compared to domestic demand had doubled, reaching up to 20 million units.
This gigantic domestic surplus allows Chinese manufacturers to offer their models on international markets at prices orders of magnitude lower than companies from other countries. The turning point arrived in 2024: for the first time in history, Chinese automotive companies invested more capital in overseas EV markets than in their own domestic market.
Market Realignment: Retreating Europeans, Advancing Chinese
The effects of the Chinese EV offensive are already dramatically evident in the global and regional market shares of traditional European automakers. The ECFR analysis highlights two critical data points demonstrating the declining competitiveness of European industry:
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Retreat in China: The Chinese market share of German automakers (traditionally the most active in the Asian country) plummeted drastically from 24 percent in 2020 to a mere 15 percent by 2024. (The report notes that automakers from other European nations are already barely present in the Chinese market).
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Advance in Europe: While Europeans lose ground in Asia, Chinese brands are carving out an increasingly larger slice of the Old Continent’s market. By August 2025, Chinese brands captured 9.6 percent of the European EV market (including EFTA countries and the UK), a massive leap compared to their mere 1 percent presence at the beginning of the decade.
The Middle East and North Africa as a Strategic Loophole
In recent years, the European Union has attempted to respond to the threat with a “de-risking” strategy. This included imposing import tariffs on EVs from China in 2024, introducing subsidies for vehicle manufacturing within Europe, and encouraging raw material sourcing outside of China.
However, Chinese companies reacted swiftly to Western trade barriers: they redirected their investments to Europe’s southern neighbourhood, namely the Middle East and North Africa (MENA region). According to analysts, this move serves a dual purpose: it allows them to capture emerging markets while potentially circumventing Western tariffs through capacities built in the region.
European Responses: Beyond Closing Loopholes
Authors Fulton, Lons, and Tsang warn that policymakers must confront the dilemma of how to ensure the global competitiveness of domestic (European) industry during the energy transition without leaving supply chains overly vulnerable to decisions made in Beijing.
According to the ECFR’s policy recommendation, Europe’s response cannot be limited to merely closing regulatory loopholes. The European Commission must urgently reform its trade-defence instrument. The proposal suggests shifting from the current approach focused on retrospective damage control to a deterrence-oriented enforcement practice that intervenes at a much earlier stage.
Official Sources and References:
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Original Analysis / Policy Brief: EV endgame: Stalling China’s export surge in Europe’s southern neighbourhood (European Council on Foreign Relations, March 26, 2026)