The automotive industry represents 7% of the EU's GDP and provides 13 million jobs, both direct and indirect. The sector is undergoing an unprecedented transformation, driven by technological, competitive, and geopolitical factors. Digitisation, decarbonisation, the entry of new competitors, and the evolution of the global context are eroding the competitive advantages of European companies. The risk is that the continent’s automotive industry may fall behind international players, particularly in terms of production costs and mastery of key technologies such as batteries, connected vehicles, and autonomous driving. For those sceptical of the growth of electric vehicles, the data speaks for itself. 

The EU and EFTA (European Free Trade Area) market saw around 15 million registrations in 2000. By 2020, total sales had fallen to 10.6 million, with European manufacturers also experiencing a decline in the crucial Chinese market (-8.8% for Volkswagen). Connectivity, sharing, changing consumer preferences, and services such as autonomous driving are set to further reduce these figures in the coming years. The restructuring of the industrial system is structural, not episodic. The political question should be what to do to convert production assets and jobs in a market that is set to shrink. Fewer units, and more connected, will be on the streets, regardless of the power behind the wheel. Meanwhile, global sales of electric vehicles increased by 18% in January. The market is moving quickly, and Europe must decide whether it wants to lead the change or follow it. In the face of a threatened trade war, environmental regulations and emission tariffs serve as a crucial safeguard for our industry.

Many of the damages are self-inflicted: the result of industrial choices prioritising short-term financial returns and complacent policies. The Dieselgate scandal is one glaring example. 

It is also worth noting that research and development in Europe have played a marginal role in the automotive industry’s strategies and European programmes (including Next Generation EU), which arrived late compared to the global evolution of the car market. “Technological neutrality” is not a philosophical concept but the outcome of a range of available options.

Addressing this challenge requires swift, coordinated action to avoid serious repercussions for employment and the European economy. Close collaboration between the public and private sectors, as well as among all players in the automotive industry’s value chain, will be crucial. Above all, focusing on the facts will be key.

Competitiveness and transition: a delicate balance

Today’s challenge is threefold: to protect the sector’s competitiveness while ensuring the achievement of climate and social goals. The automotive industry must consider broad factors. While industrial competitiveness is at the heart of the European Commission’s new work programme, the simplification of regulations will not come at the expense of environmental ambition. This was reaffirmed by Economy Commissioner Valdis Dombrovskis when presenting the measures for 2025 on 12th February. 

This concept was reiterated in a closed-door meeting just days earlier, in which Dombrovskis participated alongside Justice Commissioner MaGrath and Maria Luis Albuquerque, responsible for financial services. While they provided very few or no details on upcoming proposals to simplify sustainable finance regulations, they nonetheless highlighted their commitment to the Green Deal.

Global competition and the role of China

The decline of the European automotive industry is not caused by EU regulations on electric vehicles but by strategic missteps and the loss of market share in China. In fact, many of the vehicles imported from China that are taking market share from European manufacturers are not just electric vehicles, but hybrids with an internal combustion engine. This shows that the problem lies not so much in the transition to electric vehicles, but in the ability of European industry to effectively compete in an increasingly dynamic and aggressive global market. 

The lowering of environmental standards, a declared goal of the US administration, can only be against Europe's interests. 

The real challenge for European industry, therefore, is to face global competition not just in the area of electrification but also in its ability to innovate and adapt to new market demands.

Early and consistent environmental efforts

• China’s success in the new energy vehicle industry stems from the early adoption of environmental measures and long-term planning, based on social engineering and commitment to the green transition

• Since the late 1970s, China began combating pollution, exacerbated by rapid industrialisation and urbanisation

• In the 1990s, air pollution in major cities led the government to take drastic action, setting stringent energy conservation and emissions reduction goals for 2005. These measures encouraged businesses to adopt more eco-friendly production methods, following the principle that legislation drives green innovation and the creation of markets through public demand to support local supply chains

Incentives for electric vehicle (EV) adoption

Policies like exemptions from the car licence plate lottery in Beijing and Shanghai have encouraged the adoption of electric vehicles. 

Significant investments in charging infrastructure, through financial subsidies and public-private partnerships, surpassed 20 billion RMB (2.8 billion dollars) between 2015 and 2020, well before the widespread adoption of EVs. 

By June 2023, China had more than 10.24 million charging stations, supporting a fleet of 24 million electric vehicles.

Stricter fuel consumption standards

• Since 2004, Beijing has progressively tightened fuel consumption standards for passenger vehicles, encouraging the adoption of more efficient technologies

• A new regulation proposal suggests consumption limits based on vehicle weight, further pushing manufacturers toward greener solutions. For vehicles over 2.51 tonnes, the proposed limit is 4.7 litres per 100 km

• These measures encourage automakers to invest in technological innovation and the transition to sustainable mobility

Environmental regulation and Euro 7

Since 1990, Europe has adopted increasingly stringent measures to limit vehicle emissions, both pollutants and greenhouse gases. Despite the “Dieselgate” scandal, the trajectory towards tighter limits has shaped the evolution of internal combustion engines and systems for the efficient management of vehicles. EURO 7 follows the “traditional” path with the imposition of stricter emissions limits.

However, the combined impact of TESLA and new Chinese electric and hybrid car manufacturers has taken the European industry by surprise, rendering EURO 7 clearly transitional and partially outdated, and exposing the delays of European institutions and national governments.

This is further compounded by the compromise on EURO 7, which reduces the obligations for installing more efficient filters on all engines, particularly those currently exempt, weakening the ability to meet the limits originally set out in the EURO 7 impact assessment, and leaving unresolved issues regarding the reduction of particulate pollution.

The weakening of the regulation compared to the initial proposal was justified as a measure to ease the transition to electric vehicles, but in reality, it has not benefited the European automotive industry, as the current crisis clearly demonstrates.

The revision of the EURO 7 regulation and the 2035 vehicle electrification deadline must take into account practical technological alternatives, in order to meet environmental goals while safeguarding the competitiveness of European businesses. It is clear that a separate European market, disconnected from the global car market, as seen with Dieselgate, would have detrimental effects on both competitiveness and employment.

The role of the supply chain and the battery challenge

In this context, it is important to distinguish between car manufacturers, which have often been slow to adapt to the transition, and their suppliers, who have proven more responsive and competitive, providing components even to foreign automakers. Much of the electric vehicle component supply chain is already present in Europe and deserves to be further strengthened.

The missing link, however, is battery production. To bridge this gap, two parallel strategies should be followed:

1. Investment in near-commercialisation technologies, focusing on advanced projects and avoiding the waste of public funds on less promising initiatives

2. Research and development in next-generation technologies, where the best opportunities for recovering competitive delay exist

Joint ventures with global industry leaders could help localise production and create new jobs in Europe.

Public support and measurable goals

Any public support for the automotive industry should not be a blank cheque but linked to clear commitments and measurable goals to ensure that the sector is seriously committed to the transition. This is the only way to protect both industry and workers.

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