The European automobile industry, a cornerstone of the continent’s economy, is facing a period of unprecedented turbulence. From the closure of factories to the rise of electric vehicles, the challenges are multifaceted and deeply interconnected. This blog post delves into the state of the industry, examining the causes, consequences, and potential solutions to its ongoing crisis.

A Sector Under Siege

In recent years, Europe’s automobile sector has been grappling with declining demand, fierce competition, and the pressure to transition to sustainable alternatives. Volkswagen, Europe’s largest car manufacturer, has faced strikes aimed at preventing factory closures, while Michelin, a titan in tire manufacturing, announced the closure of two sites in France. These are not isolated incidents. Across Europe, social plans, workforce reductions, and factory closures are becoming the norm.

Declining Sales and Production

The roots of the crisis trace back to 2019, a year that marked the culmination of six consecutive years of rising sales in Europe. However, the COVID-19 pandemic dealt a severe blow to the industry. From 15.3 million new cars sold in 2019, annual sales plummeted to below 10 million in the subsequent three years. Although 2023 saw a modest rebound to nearly 13 million units, projections for 2024 indicate another slowdown. The industry is still 20% below its pre-pandemic levels, translating to a shortfall of 2 to 2.5 million vehicles annually. This production gap has significant ramifications for revenues and employment.

The Employment Crisis

In the first half of 2024 alone, the European automobile sector announced 32,000 job cuts. Employing 2.4 million people directly, the sector constitutes 8% of industrial jobs in the EU. The crisis affects not just manufacturers but also suppliers like Michelin, Valeo, Forvia, and Continental. While manufacturers tend to negotiate socially acceptable exit terms for employees, suppliers often resort to harsher measures like collective layoffs and site closures.

The Shift to Electric Vehicles (EVs)

One of the primary challenges facing the industry is the shift to electric vehicles. In 2023, EVs accounted for just 14% of new car sales in Europe, compared to 39% for internal combustion engine (ICE) vehicles and 26% for hybrids. The European Parliament’s decision to ban the sale of ICE vehicles by 2035 was expected to spur EV adoption. However, high prices remain a significant barrier. For instance, BMW’s electric SUVs cost around €85,000, far beyond the reach of the average consumer. Experts argue that affordable EVs, priced below €17,000, are essential for broader adoption.

Infrastructure and Affordability

The challenges extend beyond vehicle costs. The high price of electricity in Europe—three times that of China and the United States—makes EV ownership less attractive. Additionally, the lack of charging infrastructure, limited government incentives, and insufficient tax breaks further hinder the market’s growth.

Europe’s Competitive Disadvantage

European automakers are also struggling against the backdrop of intense competition from China. Chinese manufacturers, supported by strategic government policies and lower production costs, have rapidly gained a foothold in the global EV market. In 2023, China overtook Japan as the world’s largest car exporter, selling 4.9 million vehicles—a quarter of which were EVs or hybrids. Chinese brands now offer affordable and technologically advanced EVs, outpacing European competitors in many respects.

Policy and Strategic Challenges

Europe’s fragmented policies have added to the industry’s woes. Unlike China, which operates on long-term strategies spanning decades, Europe often shifts between conflicting policies, creating uncertainty for manufacturers and consumers alike. Some experts argue for a cohesive, multi-decade strategy to stabilize the industry and foster innovation.

Protectionism vs. Competition

The EU has introduced tariffs of up to 45% on Chinese EV imports to shield local manufacturers. However, opinions on protectionism are divided. While some advocate for safeguarding European jobs, others argue that competition drives innovation and benefits consumers. A broader consensus suggests that fostering local production and innovation—rather than solely relying on trade barriers—is the way forward.

The Road Ahead

The transition to electric vehicles requires significant investment. According to the European Automobile Manufacturers’ Association, €250 billion has already been spent on this shift. Yet, the path to success remains fraught with challenges. Europe’s automotive brands must navigate this transformation carefully to avoid industrial decline.

To thrive in the EV era, European automakers need to:

1. Make EVs Affordable: Develop cost-effective models that cater to the average consumer.
2. Improve Infrastructure: Invest in charging networks and ensure affordable electricity.
3. Adopt Long-Term Strategies: Emulate China’s multi-decade planning approach to create stability and predictability.
4. Leverage Technology: Strengthen R&D to compete with Chinese advancements in EV technology.
5. Promote Collaboration: Foster partnerships within Europe and globally to share knowledge and reduce costs.

Conclusion

The European automobile industry stands at a crossroads. The transition to electric mobility is both a challenge and an opportunity. With strategic planning, investment, and collaboration, Europe can reclaim its leadership in the global automotive market. However, failure to adapt could lead to a significant economic and industrial downturn. The road ahead demands resilience, innovation, and a commitment to sustainable growth.