(Yicai) May 20 -- Stellantis is close to finalizing negotiations with Dongfeng Motor Group to provide its long-time Chinese partner with original equipment manufacturer contract services at its factory in western France, with vehicles primarily targeting the European market, according to a source close to Stellantis.

The Rennes-la Janais plant of Stellantis will be assembling at least one Dongfeng Motor-branded model, the source told Yicai. The European carmaker needs to restructure its business and handle underutilized capacity amid a downturn in corporate performance, while Chinese peers are expanding into Europe, backed by their electric vehicle tech, the source added, noting that the latest tie-up could yield a win-win outcome.

Earlier this month, Stellantis announced that its Spanish factories in Figueruelas in Zaragoza province and Madrid's Villaverde district will manufacture vehicles for Leapmotor Technology, the best-selling EV startup in China. The pair also plans to jointly build a new all-electric compact sport utility vehicle under the Opel brand at the first plant and explore an equity transfer to transform the second into a joint venture factory.

Stellantis is scheduled to announce a deep transformation plan tomorrow, including promoting industrial alliances, streamlining brands, cutting operating costs, and other measures. The company has seen sluggish performance over the past two years, with its net loss expanding to EUR22.3 billion (USD25.9 billion) last year, mainly due to missteps in its electrification strategy.

Many factories of foreign carmakers have a capacity utilization rate of only 50 percent, Yang Yanding, general manager of Dongfeng Motor's strategic planning department, said at this year's Beijing Auto Show. Efficient utilization of capacity resources can be achieved through alliances, with available cooperation models including JVs, capacity leasing, and equity partnerships, Yang pointed out.

Chinese automakers manufacturing in idle European plants can bypass the high tariffs imposed on exports to Europe, Cui Dongshu, secretary-general of the China Passenger Car Association, said to Yicai. In addition, retrofitting an existing factory takes only about one year, which is significantly faster than the three to five years required to build a new facility, Cui stressed.

Reviving idle capacity can also create employment opportunities for locals and supply chain workers, helping to improve brand image and better achieve business localization, Cui pointed out.

Although Chinese automakers face various challenges when using idle European facilities, including higher local labor costs, stringent regulations, and a strong union culture, the benefits generally outweigh the negatives, Cui said. Such moves represent a pragmatic choice for them to "break down barriers in the short term while taking root in the long term" within the European market, Cui noted.

Editors: Tang Shihua, Martin Kadiev