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| Fig. 1: New car sales in the EU by power souce. (Image Source: M. Ferretti, after the ACEA. [5]) |
The European automotive industry stands as a vital economic engine, deeply interwoven with regional economies and serving as a cornerstone of manufacturing in the EU. Employing nearly 14 million people, or 6.1% of the EUs total workforce, the industry reflects a legacy of innovation and collaboration across borders. [1] In 2023, it contributed 8% to the regions manufacturing value, maintaining its status as a key driver of economic stability despite challenges. This robust sector encompasses 255 facilities for vehicle assembly and the production of critical components like batteries and engines, underscoring its pivotal role in both traditional and emerging automotive technologies. [2]
With 14.8 million vehicles produced in 2023, the EU has remained a net exporter of automobiles, although production levels have yet to recover fully from the disruptions of the COVID-19 pandemic. Anchored by a sophisticated supply chain comprising large manufacturers and specialized small and medium-sized enterprises (SMEs), the EU automotive sector thrives on a network of upstream and downstream partnerships. This blend of historical strength and modern adaptability positions it uniquely amid global industrial competition, even as it faces a critical juncture of transformation.
The automotive industry in the EU is undergoing a profound transformation driven by regulatory, technological, and consumer shifts. Central to this change is the EU mandate requiring all newly sold vehicles to be zero-emission by 2035, with an interim review scheduled for 2026. [3] Electrification has emerged as the primary pathway to achieve these ambitious environmental targets, heavily relying on lithium-ion battery technology. Globally, electric vehicle (EV) adoption has surged, with 14 million EVs sold in 2023, representing 18% of worldwide car sales - a significant leap from just 2% in 2018. [4] Within the EU, the market share of battery electric vehicles (BEVs) has nearly tripled between 2020 and 2023 (Fig. 1), underscoring the regions commitment to this transition.
Beyond electrification, advancements in connectivity are reshaping how vehicles interact with infrastructure and other vehicles. The growing integration of data-driven systems is setting the stage for increased automation, though fully autonomous vehicles remain a longer-term goal. At the same time, shared mobility services are rising in popularity, shifting the focus from car ownership to usage. These trends are driving a greater dependency on advanced software and semiconductor technology, underscoring the need for European automakers to stay competitive in an increasingly digitized automotive landscape.
European automakers are navigating their most significant structural transformation in decades, challenged by the rise of new players from the battery and technology sectors that often outpace traditional manufacturers. Unlike vehicles with internal combustion engines, electric vehicles are simpler to assemble, opening the door for new entrants and intensifying competition. Despite the EUs strong legacy in car manufacturing, only one of the world's top 15 BEVs originates from Europe, highlighting the challenges of staying competitive in this rapidly evolving market.
A key obstacle lies in the high production costs of EVs, driven largely by expensive batteries. In contrast, China has emerged as a global leader in EV production, supported by a blend of domestic overcapacity and strategic investment in the EV value chain. By 2023, car imports from China into the EU increased by nearly 40% compared to the previous year, signaling the growing influence of Chinese manufacturers. Furthermore, China dominates the production of critical EV components, such as batteries and semiconductors, while also expanding investments across Europe.
To counteract the influx of subsidized Chinese EV imports, the European Commission introduced countervailing duties in mid-2024. However, these measures represent just one step in addressing the larger issue of global competitiveness and technological dependence, which remains a pressing concern for European automakers.
The EU automotive sector is confronting a host of challenges that threaten its global leadership. Slow economic growth, high energy costs, and disruptions in supply chains are compounding the difficulties posed by competitive foreign industrial policies, such as the United States' Inflation Reduction Act and China's state-backed investments. These factors, coupled with declining consumer demand for electric vehicles, have led to job cuts and factory closures across the region.
The Draghi Report highlights several critical vulnerabilities in the EU automotive sector, including production costs that are 30% higher than those in China, technological lags in key areas like battery manufacturing, and heavy dependencies on foreign supply chains for vital components. [1] Additionally, the declining brand value of European automakers in the global market further underscores the urgency for transformative action.
To regain its competitive edge, the EU automotive industry must address these challenges through decisive measures, such as reducing energy and labor costs, increasing automation in production processes, and fostering innovation in affordable EV and autonomous vehicle technologies. A comprehensive EU-wide industrial strategy that supports the entire automotive value chain will also be crucial for ensuring long-term sustainability and success.
© Michele Ferretti. The author warrants that the work is the author's own and that Stanford University provided no input other than typesetting and referencing guidelines. The author grants permission to copy, distribute and display this work in unaltered form, with attribution to the author, for noncommercial purposes only. All other rights, including commercial rights, are reserved to the author.
[1] M. Draghi, "The Future of European Competitiveness," Part A, Part B, European Commission. Septemer 2024.
[2] D. Brown et al.d, "The Future of the EU Automotive Sector," European Parliament, PE 695.457, October 2021.
[3] "Regulation (EU) 2023/851 of the European Parliament and of the Council of 19 April 2023 Amending (EU) 2019/631 as Regards Strengthening the CO2 Emission Performance Standards For New Passenger Cars and New Light Commercial Vehicles in Line With the Uniont's Increased Climate Ambition," Official Journal of the European Union OJ (L110) 24.4.2023 5, April 2023.
[4] "Global EV Outlook 2024," International Energy Agency, April 2024.
[5] "The Automobile Industry: Pocket Guide 2024/2025," Association des Constructeurs Européean d'Automobiles, September 2024.