There's the issue of profitability. Chinese labor is cheaper than EU labor.

Yes, the EU auto industry can in theory compete with Chinese manufacturers, but if you enter a race to the bottom with Chinese companies, you can't win, unless you count making razor thin profits and paying crap wages to your workers as "winning".

Mercedes's factory in Hungary is already complaining about a labor shortage and it's not like they're wages were already super high to begin with, which is most likely why they have that labor shortage to begin with. You can't drive wages even lower than that to compete with China.