Chinese automakers' overseas expansion in Europe Report Interpretation

Overview

Goldman Sachs examines Europe as a case study of Chinese automakers' overseas expansion. It expects modest growth in the overall European car market but continued Chinese-brand share gains, with BYD and Leapmotor positioned as major beneficiaries and valued differently for their European operations.

Core views

Goldman Sachs argues that overseas growth has become a priority for Chinese OEMs because it can supplement weak domestic demand and, in many cases, offer better profitability. Using Europe as its case study, the report expects the passenger-car market to remain broadly stable: sales volume is forecast to increase from 16.4 million units in 2026E to 17.5 million in 2035E, a 0.8% CAGR according to IHS. With a US$25,000 average selling price in China and an assumed roughly 100% European price premium, it estimates European auto-industry TAM at US$799 billion in 2035E, versus US$796 billion in 2026E, assuming stable pricing. The report's central growth thesis is that Chinese manufacturers will keep gaining European market share as they introduce more NEV models and expand distribution channels. Chinese players' share rose from 3% in 2020 to 17% in 2026, according to IHS, and Goldman Sachs forecasts it will reach 23% by 2035E. It expects BYD to reach 8% share and Leapmotor 3% by then. On the same European price-premium assumption, the institution forecasts BYD's Europe revenue to rise from US$14 billion in 2026E to US$34 billion in 2035E, while Leapmotor's rises from US$5 billion to US$14 billion. Goldman Sachs distinguishes sharply between the valuation already attributed to the two companies' European operations. It estimates BYD's Europe expansion is priced in at a 1.7x price-to-sales ratio, supported by overseas unit profit above Rmb20,000 and an estimated 21% contribution of Europe to BYD's 2035E earnings. Leapmotor's Europe business is viewed as barely priced in because its current earnings contribution is limited, although Europe is projected to contribute about 11% of its 2035E earnings. Applying the same P/E multiple to Europe and non-Europe operations and a 10.8% cost of capital consistent with its DCF work, Goldman Sachs derives Europe-business P/S ratios of 1.7x for BYD and 0.2x for Leapmotor. For company-specific coverage, Goldman Sachs maintains Buy ratings on BYD and Leapmotor. BYD's 12-month DCF-based targets are Rmb137 for the A shares and HK$134 for the H shares, with the H-share target incorporating a 10% discount. Leapmotor's 12-month DCF-based target is HK$55. The report identifies competitive intensity, overseas-execution risks and battery-sales risks for BYD; for Leapmotor, it highlights weaker China demand, market-share pressure, raw-material costs, uncertainty around its Stellantis collaboration and overseas-policy risks including tariffs.

Analysis framework

The report sizes the European market using projected passenger-car volumes, assumed pricing and the European premium to China. It then projects Chinese-brand share gains based on NEV launches and channel expansion, converts assumed shares into company revenue, and compares the implied value of each company's European business using sales multiples and DCF-consistent cost-of-capital assumptions.

Methodology notes

• Industry AnalysisSupply-demand framework

  European passenger-car market sizing through volume and average selling price assumptions

  The report estimates market value by combining projected European vehicle volumes with assumed pricing and a European premium versus China.

• Industry AnalysisVolume-price decomposition

  Revenue projections based on market share and pricing

  Projected European market shares for BYD and Leapmotor are translated into revenue using the assumed European price premium.

• Valuation methodsDCF (Discounted Cash Flow)

  12-month DCF valuation using a 10.8% WACC and terminal growth assumptions

  Goldman Sachs uses DCF-derived targets for BYD and Leapmotor and applies the same 10.8% cost of capital in its Europe-business valuation logic.

• Valuation methodsPS valuation

  Implied price-to-sales valuation of European operations

  The report compares the value ascribed to Europe revenue at 1.7x P/S for BYD and 0.2x for Leapmotor.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD Co. (A) (002594.SZ) / BYD Co. (H) (1211.HK)

  Covered beneficiary of Chinese automakers' European expansion

  Strengths

  Projected to lead Chinese players in Europe with 8% share in 2035E; overseas unit profit is above Rmb20,000.

  Weaknesses

  Europe expansion is estimated to be more fully priced into valuation.

  Comparison

  Its implied Europe-business P/S of 1.7x exceeds Leapmotor's 0.2x.

  Risks

  Intensifying EV competition, slower-than-expected overseas expansion, and lower-than-expected external battery sales.

• Zhejiang Leapmotor Technology (9863.HK)

  Covered beneficiary of Chinese automakers' European expansion

  Strengths

  Projected to reach 3% European share and US$14 billion of Europe revenue by 2035E.

  Weaknesses

  European earnings contribution is currently limited.

  Comparison

  Its Europe business is estimated at 0.2x P/S versus 1.7x for BYD, reflecting less value currently priced in.

  Risks

  Weaker China demand, intensified competition, raw-material cost pressure, Stellantis collaboration uncertainty, and overseas-policy uncertainty including tariffs.

Key data

• European passenger-car sales volume16.4 million units in 2026E; 17.5 million units in 2035E0.8% CAGR, based on IHS data.
• European auto-industry TAMUS$796 billion in 2026E; US$799 billion in 2035EAssumes stable pricing and approximately 100% European premium to China pricing.
• Chinese players' European share3% in 2020; 17% in 2026; 23% in 2035EThe forecast reflects further NEV launches and sales-channel expansion.
• BYD European share and revenue8% share and US$34 billion revenue in 2035ERevenue is projected from US$14 billion in 2026E.
• Leapmotor European share and revenue3% share and US$14 billion revenue in 2035ERevenue is projected from US$5 billion in 2026E.
• Implied Europe-business P/S1.7x for BYD; 0.2x for LeapmotorBased on the report's same-P/E and 10.8% cost-of-capital assumptions.
• BYD targetsRmb137 for A shares; HK$134 for H shares12-month DCF-based targets; the H-share target applies a 10% discount.
• Leapmotor targetHK$5512-month DCF-based target.

Impact & implications

The report argues that China-to-Europe expansion can provide Chinese OEMs with a meaningful growth and profitability outlet despite weak domestic demand. It sees BYD's Europe opportunity as more recognized in valuation, while Leapmotor's projected European contribution is less reflected because its near-term earnings contribution remains limited.

Risks

• For BYD, the report cites intensifying EV competition, slower-than-expected overseas expansion and lower-than-expected external battery sales.
• For Leapmotor, the report cites weaker-than-expected China demand, market-share loss amid competition, raw-material cost pressure, uncertainty around its Stellantis collaboration and overseas-policy uncertainty such as tariffs.

What to watch

• Chinese automakers' European market-share progress, including NEV launches and sales-channel expansion.
• Whether BYD and Leapmotor deliver the report's projected European revenue growth and earnings contribution.
• The pace of overseas expansion and changes in tariff or other overseas policy conditions.
• The intensity of EV competition and the effect of raw-material costs on Leapmotor.