Core Insights - The IAA Mobility Show in Munich indicates a significant transformation in the European auto industry, with contract manufacturing being redefined as Chinese brands aim to establish a local presence [1] Group 1: Industry Trends - Traditional contract manufacturers like Magna Steyr, Valmet Automotive, and VDL Nedcar are experiencing reduced demand as European OEMs consolidate and phase out Internal Combustion Engine (ICE) vehicle lines, leading to low utilization rates [2] - Volkswagen Group plans to reduce its manufacturing capacity in Germany by 30% over the next 4-5 years, while BMW Group intends to bring all European production in-house by 2028, marking a shift from previous outsourcing practices [2] Group 2: Impact on Contract Manufacturers - The decline in external manufacturing demand has particularly impacted Magna Steyr, with contracts for models like Jaguar's E-Pace and I-Pace ending in 2024, and production of BMW's 5-Series ceasing in 2023 [3] - Magna Steyr's plant in Graz, which has a capacity of up to 235,000 units per year, now faces significant spare capacity, creating opportunities for smaller Chinese brands to enter the European market [3] Group 3: Chinese Automakers' Localization Efforts - Chinese automakers such as Guangzhou Automobile Group (GAC) and Xpeng are localizing production in Europe to avoid EU tariffs on Chinese Electric Vehicles (EVs) and to better cater to European consumer preferences [4] - GAC announced that its Aion V Midsize SUV and Aion UT Hatchback will be manufactured at Magna Steyr, while Xpeng confirmed that assembly of its G6 and G9 SUVs is already in progress at the same facility [4] Group 4: Broader Chinese Market Entry - GAC and Xpeng represent a second wave of Chinese models entering Europe, focusing on localization and variety, with BYD planning to produce the Dolphin Surf at its new Hungarian plant by the end of 2025 [5] - Leapmotor, in collaboration with Stellantis, introduced the B05 Hatchback, which is set to be localized from 2027, while Chery has commenced production in Spain through a joint venture [5]