The Italian government stated that it is talks with Tesla Inc (TSLA  ), as well as with Chinese automakers, in attempt to get them to bring their manufacturing to the country and boost the national output after years of decline on the automotive front.

At an event in Turin on Wednesday, Italy's sole major automaker, Stellantis N.V. (STLA  ) CEO Carlos Tavares warned that the arrival of Chinese car manufacturing in Italy would force some tough and unpopular decisions for the automaker. This move would likely result in Stellantis losing market share and sales volumes, to which it would have to respond by doing whatever it takes to accelerate its efforts to increase productivity and its competitiveness.

On Thursday, Volkswagen Group (VWAGY  ) revealed its plans to invest 2.68 billion to expand its production and innovation hub in China, more precisely in the city of Hefei in Anhui Province, with the aim of increasing the speed of bringing technologies to market by about 30%. In 2022, Volkswagen got dethroned in China by the local BYD Company Limited (BYDDY  ) who became the best-selling car brand, giving even Tesla a run for its money. Moreover, BYD even shortly dethroned Tesla as the top EV Maker during the last three months of 2023. As part of its e-offensive, Volkswagen continues to prepare the two EVs it is developing with XPeng Inc (XPEV  ).

Meanwhile, the Chinese EV maker, XPeng, continues to expand beyond the overcrowded market in China. XPeng just signed a distributor deal to expand into Honk Kong and Macau. XPeng already made its European entry and did it by launching two EVs in Germany at the end of March. With joined forces, XPeng and Volkswagen have a win-win scenario. Volkswagen gets to strengthen its footing in China and expand its EV portfolio quickly, with both enjoying an improved cost structure and XPeng gaining a European ally as it continues to expand its global footprint.

During the first quarter, Volkswagen Group reported that deliveries rose 3% YoY to 2.10 million vehicles, with China being among the top growth drivers, rising 8%, along with South America and North America that reported growth of 14% and 5%, respectively. But, fully electric models (BEVs) experienced a decline of 3% that was compensated by the 4% rise in deliveries of traditional vehicles with internal combustion engines. However, the good news on the EV front is that there was a strong growth of 91% in China, but it that did not fully offset the 24% decline in Europe.

While European automakers face an EV slowdown, Chinese EV makers continue their aggressive expansion.

According to market research firm Rho Motion, global EV sales and plug-in hybrids rose 12% YoY in March, but the growth in China and the U.S. were partly offset by Europe's 9% drop. Although still positive, growth has slowed, and Europe's EV enthusiasm seems to be on pause.

Meanwhile, Chinese EVs keep arriving to Europe's ports with EV makers like XPeng and BYD expanding to the continent. Other automakers could follow the footsteps of Volkswagen to focus on making friends in China and gaining access to its technology to avoid getting swept by the aggressive push of Chinese EV makers. If the mighty EV pioneer like Tesla had to sacrifice its margins by resorting to slashing prices to boost its competitiveness against BYD, no automaker is safe.

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