MADRID, Spain: Spain has emerged as the leading contender to host Chinese automaker BYD's third European manufacturing plant, according to two people briefed on the matter, positioning the country to become a significant hub for electric vehicle (EV) production on the continent.

The new facility would join BYD's existing and planned factories in Hungary and Turkey, strengthening its bid to challenge Tesla in Europe while advancing its goal of producing all vehicles sold in the region locally within three years.

One of the sources said Spain was the front-runner because of its low manufacturing costs and clean energy network, factors that have helped draw several other global automakers in recent years.

While BYD's search for a third European site has been public, Spain's position as the favourite has not been previously reported.

BYD's country manager for Spain and Portugal, Alberto De Aza, said last month that the nation would be an "ideal location" for the company's next expansion, citing its industrial infrastructure and cheap electricity.

However, a third source cautioned that no final decision has been made and that other European countries remain under consideration. Any project will require regulatory approval in China, with a decision expected before year-end.

Earlier this year, it was reported that Germany was among the countries BYD had evaluated, but internal discussions cited high labor and energy costs as significant drawbacks. Both BYD and Spain's Industry Ministry declined to comment.

BYD's European sales have surged 280 percent in the first eight months of 2025, driven by strong demand for plug-in hybrids and fully electric cars. To support rapid growth, the company has revamped its regional operations, hired new managers, and expanded dealership networks.

Spain's bid also benefits from warmer diplomatic and trade ties with China. Last year, Madrid abstained from an EU vote on tariffs targeting Chinese-made EVs, a move that distinguished it from Germany, which voted against the measure, and other member states that supported it.

Beijing subsequently urged Chinese automakers to freeze new investments in countries that backed the EU's proposed tariffs, it was reported at the time.

Spain, already Europe's second-largest car producer, has been aggressively courting EV investment through a five billion-euro (US$5.8 billion) incentive program launched in 2020 using EU pandemic recovery funds. The initiative has drawn major commitments from Volkswagen, Chery, and battery maker CATL.

BYD's first European plant in Hungary is currently under construction, though sources said in July that mass production has been delayed until next year. Its Turkey plant is due to open in 2026.

If Spain is selected, it would further solidify BYD's position as the most geographically diversified Chinese automaker in Europe, and underscore its determination to establish a permanent manufacturing footprint on the continent despite rising trade tensions.