The European automotive industry, long a global leader in innovation and manufacturing, is now facing an existential crisis.
With electric vehicle (EV) sales in sharp decline, labor strikes spreading, and energy costs surging, the future of car production across Europe is increasingly uncertain.
As these challenges intensify, many are questioning whether the industry can survive in its current form.
Carmakers are struggling as EV sales plummet
The European electric vehicle market, once hailed as a success story, has seen a sharp decline in recent months.
EV sales dropped by 36% across the region in August, with Germany—Europe’s largest car market—bearing the brunt of this downturn with a staggering 69% drop in EV sales.
According to the European Automobile Manufacturers’ Association (ACEA), this steep decline in demand has left automakers scrambling for solutions.
The drop in sales comes after many governments across Europe scaled back financial incentives that made EVs more affordable.
In combination with high inflation and rising energy costs, this pullback has made it harder for consumers to justify the already expensive switch to electric vehicles.
As a result, the market share for EVs shrank to 14% in August, down from just over 15% the previous year.
Manufacturers like Volkswagen and Renault, once banking heavily on a successful transition to electric, now find themselves struggling to meet EU fleet emissions targets that are set to tighten in 2025.
Failure to meet these standards could result in billions of euros in fines for automakers, putting further strain on the industry.
BMW, one of the continent’s leading carmakers, has already lowered its full-year earnings forecast due to sluggish EV sales.
Meanwhile, Volkswagen is considering shutting down domestic factories for the first time in decades.
This has led to increased labor unrest, with strikes and protests erupting across Europe, most notably in Brussels.
Rising worker unrest could cause chaos
As European automakers confront declining demand and regulatory pressures, they are also grappling with significant labor disputes.
The potential closure of Audi’s Brussels factory, which employs 3,000 people, has sparked widespread protests.
Over 5,000 workers recently marched through the streets of Brussels, protesting against the threat to their jobs and calling on European authorities to protect the continent’s automotive industry from cheaper overseas competition, particularly from China.
Audi’s Brussels plant, which manufactures the electric Q8 e-Tron, symbolizes the uncertainty facing even EV-focused factories.
Despite producing a model aligned with Europe’s push for green technology, the plant faces potential closure due to low demand for the vehicle.
Union officials warn that the plant’s fate is part of a broader issue, with European industry losing ground to cheaper global competitors.
The European labor market, particularly in the auto sector, is facing increasing tension as manufacturers look for ways to cut costs in response to rising energy prices and declining sales.
Volkswagen, for instance, has already scrapped a decades-old labor pact and may close domestic plants.
Workers fear that without significant intervention, many more European factories could face closure, leading to widespread job losses.
Energy prices: Europe’s ‘Achilles’ heel’
One of the most pressing challenges for European automakers is the continent’s soaring energy prices.
The price shocks caused by Russia’s invasion of Ukraine, combined with ongoing geopolitical tensions, have left Europe paying some of the highest energy costs in the world.
With Brent crude oil prices hovering around $90 a barrel and diesel costs up by 60% since summer, European industry is increasingly uncompetitive compared to other advanced economies such as the US, Japan, and Canada.
Europe’s dependence on imported energy, particularly Russian gas, has not been fully mitigated despite efforts to diversify supply lines.
Norwegian gas and liquefied natural gas (LNG) shipments have filled some of the gaps, but not enough to offset the sharp rise in energy costs.
These higher input costs are squeezing automakers, who are already dealing with declining sales and regulatory pressures.
The high cost of energy is putting European automakers at a distinct disadvantage compared to their counterparts in the US and Asia, where energy prices are lower, and government subsidies for clean energy technologies are more robust.
According to the Economist Intelligence Unit, Europe’s energy price hikes will have long-term implications, including business failures, higher debt burdens, and setbacks in the green transition.
Can European automakers survive?
Given these combined challenges—falling EV demand, labor unrest, and energy price shocks—there is a growing concern that European automakers could be heading for a death spiral.
The question remains: can the industry survive, or will it be gradually eroded by external forces?
One of the critical issues is Europe’s lack of a cohesive industrial policy.
While the US, China, and Japan have all implemented aggressive policies to support their domestic industries through the transition to clean energy, Europe has lagged.
The EU’s Green Deal, while ambitious, has failed to address the immediate needs of industries struggling with rising costs and geopolitical uncertainty.
The lack of affordable critical minerals for clean energy supply chains, along with stalled trade deals with key commodity producers like Mercosur, has only added to Europe’s woes.
Adding to this, the rapid ascent of Chinese EV manufacturers further exacerbates the pressure on European automakers.
Companies like BYD, Xpeng, and Li Auto have capitalized on their ability to produce affordable, high-tech electric vehicles.
In September, several of these Chinese companies broke sales records, offering aggressive discounts and launching new models equipped with advanced semi-autonomous driving technologies.
These efforts have allowed them to undercut not only European carmakers but also global competitors like Tesla.
With Chinese firms gaining significant ground in the global EV market, European automakers now face stiff competition from lower-cost, more adaptable rivals that are quickly expanding their influence beyond China’s borders.
In light of these developments, EU member states are set to vote on October 4 on whether to impose significant tariffs on Chinese electric vehicles (EVs), with proposed duties reaching up to 36%.
The move comes after an EU investigation found that Chinese state subsidies were giving their EV manufacturers an unfair advantage over European competitors.
Without a coherent strategy for energy and industrial policy, and as they fall behind Chinese competitors, European automakers will continue to face mounting challenges in the years ahead.
If the continent cannot improve its industrial policies or offer competitive alternatives in the EV market, it risks watching its automotive sector erode as foreign companies seize market share.
What needs to change?
For European automakers to avoid a death spiral, significant changes are needed at both the corporate and policy levels.
First, European governments must reassess their approach to incentivizing EV adoption.
The rollback of subsidies has hurt demand at a time when consumers are already feeling the pinch from inflation and high energy costs.
A more targeted approach to subsidies, perhaps focused on making EVs affordable for middle-income buyers, could help reignite demand.
Second, Europe needs a more comprehensive industrial policy that supports its automotive sector through the green transition.
This includes securing affordable access to critical minerals and building more resilient supply chains.
Trade deals with key partners like Mercosur should be revisited, and new relationships with emerging markets should be explored to ensure that Europe has the resources it needs to remain competitive.
Finally, automakers themselves must adapt to the new realities of the market.
This could mean scaling back production in high-cost regions, streamlining operations, and investing in new technologies that lower manufacturing costs.
Companies like BMW have already begun preparing for tighter EU emissions standards, but more needs to be done across the industry to avoid regulatory penalties and maintain competitiveness in a changing market.
Although there could be hope in the long run for EV automakers in Europe, it’s really hard to find a bull case on why one would invest in that market for the time being.
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