European Automotive Industry: Move Forward or Fall Behind
Photo Courtesy: VWS.extern via Wikimedia Commons
Once grand European automotive manufacturers are dancing with the threat of irrelevance.
A symbol of the continent’s ails, Volkswagen, the “people’s car” that transformed the German economy and became an emblem of the great industrial power, announced its intention to close factories in Germany and Belgium for the first time in the group’s history. Suffering a 42% drop in operating profits in the third quarter of 2024, the company restructuring efforts seem marginal compared to the drastic economic reality.
In complete contrast to Volkswagen, Chinese automotive manufacturers boast their new-found might. In 2023, China became the global leader in automotive exports.
Volkswagen’s troubles stem from two regional markets, both comprising an identical feature. In the Chinese market which accounts for above 30% of sales for Volkswagen, and other European manufacturers, the group reported an 8.3% fall in deliveries in 2024 and a falling market share amid competition with Chinese brands. In the European market, the group recorded a 1.7% drop in deliveries in 2024, despite increases in European sales for Chinese car manufacturers.
If the numbers are unclear, Chinese competitors are placing unmatched pressure on European manufacturers with their lower prices and vastly improved technologies.
To protect the European automotive sector, and its 13.8 million jobs on the continent, the European People’s Party has one key solution: roll back EU legislation on the phase-out of combustion engines by 2035. According to the EPP, the phase-out would price out many Europeans from owning cars and, more importantly for this article, end any sense of European competitiveness in the automotive industry. In summary, according to Peter Liese, “The ban on combustion engines — that needs to go”.
The EPP’s plan assumes that maintaining the status quo of European manufacturers will allow them to maintain market share, giving them the choice to avoid fierce competition in the EV market. What this assumption fails to take into account is that European failure to develop strong EV technologies is the root cause of today’s alarming situation.
In China, once Europe’s booming automotive export market, EV market share has increased by around 10 percentage points yearly, with Chinese consumers opting for cheaper, more efficient and capable Chinese models. In Europe, EV market share is also rising, with Chinese manufacturers increasing their market share in European EV sales by 3% percentage points each year.
The EPP has failed to realise that the shift to EVs is not a trend dictated by European legislation but instead self-driven and global. Today, 30% of the cost of an EV is the lithium-ion battery while the cost of lithium-ion battery packs has continued to fall, registering a 20% fall in 2024. UBS predicts that by 2040 EVs will dominate global vehicle sales. For all these reasons, the EPP’s plan is doomed to fail. It will delay Europe’s carbon neutrality plans, and will only succeed in delaying the collapse of the European automotive industry.
In a world advancing towards EV dominance at full speed, the disadvantages in EV technology European manufacturers have accumulated, fueled by a belief that European combustion engineering prowess would prevail, will prove difficult to overcome. Delaying the necessary shift to fast EV innovation will signal the end to the European automotive industry.
The EU must bet on regulatory stability, competitive economic policies and an innovation-focused industrial policy. My commitment to the EPP is unwavering, and so is my belief that it is the best-placed party to rebuild Europe's competitive edge. This year’s announcement of the EU Compass for competitiveness is proof of the party’s actions. Nevertheless, a focus on the realities of tomorrow’s economy is key.