Geely will manufacture electric cars at Ford’s underused plant in Spain under a deal announced by Prime Minister Pedro Sanchez

A Ford factory in Spain will be used by Chinese auto-giant Geely to build electric vehicles for the European market, Spanish Prime Minister Pedro Sanchez has announced, confirming earlier media reports.

The deal will give the automaker its first vehicle production site in the EU, allowing it to bypass the bloc’s tariffs on Chinese-made electric vehicles.

Geely will build vehicles on an idle assembly line at Ford Motor Company’s facility in Almussafes, Valencia, Sanchez announced on Thursday during a visit to the plant. He described the agreement as a way to preserve production and industrial activity at the facility.

Once Ford’s largest plant outside the US, it has been running at less than a quarter of its annual capacity of 450,000 vehicles, as Ford scaled back its European operations in 2023 after years of losses in its passenger-car business.

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The agreement comes less than two years after the EU imposed additional tariffs on Chinese-made electric vehicles, seeking to slow the expansion of Chinese automakers in the European market. Rather than keeping them out, the measures encouraged several manufacturers to establish production inside the bloc instead of exporting cars, thus bypassing tariffs.

Several Chinese automakers have responded by localizing production in Europe. BYD is building a factory in Hungary, Chery has taken over Nissan’s former plant in Barcelona, SAIC is pursuing manufacturing plans in Spain, while Leapmotor assembled vehicles through its partnership with Stellantis in Poland and is now shifting production to Spain.

The agreement comes as Europe’s automotive industry grapples with weak demand, rising energy and labor costs, and the costly transition to electric vehicles.

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Volkswagen, Europe’s largest carmaker, is pursuing its biggest restructuring in decades, with plans to cut tens of thousands of jobs and reduce production capacity as it grapples with high costs, excess factory capacity, and growing competition from Chinese rivals. Stellantis has also announced that it will end vehicle production at a plant near Paris by 2028, citing industrial overcapacity and a shrinking European car market.