BYD Co. Ltd. (BYDDF) might be bringing its tiniest electric offering to European roads, but there's a catch: regulators need to play ball first.

Waiting on Brussels

BYD Vice President Stella Li told reporters the company would consider launching the Racco in Europe "if there's some space," according to Autocar. What she means by "space" is regulatory space. Li noted that BYD is "very interested to follow the EU regulation" on this front.

Here's the context: EU lawmakers are currently debating whether to create a new category for affordable, compact electric vehicles built in Europe. If that happens, BYD's Racco could slot right in.

The Racco made its debut at the Tokyo Motor Show last month as BYD's first attempt at cracking Japan's kei car market. For the uninitiated, kei cars are Japan's smallest street-legal vehicles, traditionally limited to 660cc engines for gas-powered versions. They come with tax benefits for owners, though those perks have diminished over time.

The electric Racco packs a modest 20 kWh battery delivering 112 miles of claimed range, with fast charging capabilities up to 100kW. In Europe, it would likely sit below the Dolphin Surf EV in BYD's lineup, targeting budget-conscious urban drivers.

BYD Rises While Tesla Stumbles

The potential European expansion fits neatly into BYD's broader momentum in the region. The UK has become the automaker's largest market outside China, with 11,271 vehicles sold there in September alone.

Meanwhile, BYD recently expanded its Zhengzhou factory in China to a staggering 22.5 square kilometers, making it more than six times larger than Tesla Inc. (TSLA)'s Texas Gigafactory. The facility employs roughly 60,000 workers.

Tesla, by contrast, is hitting some speed bumps. European sales dropped 10.5% in September, with Italy seeing a particularly sharp 25% decline. Things aren't much better in China, where Tesla's October sales fell 9.9% and exports plunged over 32% during the same period.

The contrast is striking: BYD expanding both its product lineup and manufacturing footprint while Tesla grapples with declining numbers across multiple major markets. Whether the Racco actually makes it to Europe depends on regulatory decisions, but BYD is clearly positioning itself to capitalize on any opportunity that emerges.