Struggling to Keep Up: The Future of Europe’s Automotive Industry
The automotive industry is following the general trend toward green energy, with electric vehicles (EVs) reshaping the future of transportation. As governments around the world set ambitious EV transition goals with rapidly approaching deadlines, countries are scrambling to position themselves as leaders of the movement to EVs. Those who manage to pull ahead now will hold the power to influence the trajectory not only of the EV landscape, but of the broader global transition to green energy. On the other hand, the countries who fail to adapt quickly will only have an increasingly difficult time catching up to those ahead. This moment is crucial, not just for the future of the automotive industry but for shaping the power dynamics surrounding environment discourse in the 21st-century.
Europe is a leading example of just how significantly the shift to green energy is changing the power dynamics of the automotive industry, and how quickly countries in leadership positions can change. Since the early 20th century, Europe has been a global powerhouse of car production, with over seven percent of the EU’s GDP being generated from the automotive industry. However, the shift to EVs has been a bumpy one for Europe, despite it having set ambitious EV goals to totally ban the sale of new internal combustion engine vehicles by 2035.
One of Europe’s largest challenges in its shift towards EVs is its lack of stable, localised supply chains. The shock to gas prices in Europe following Russia’s invasion of Ukraine in early 2022 underscored the need to reduce foreign dependencies, and the rapidly developing nature of the EV industry makes having localised supply chains crucial to ensure room for flexibility and adaptability in the production process. However, localising Europe’s EV supply chain has proven to be a difficult task due to its limited access to raw materials such as lithium and cobalt, lack of competent EU-based battery manufacturers, and high energy and labour costs. China, on the other hand, has established vertically integrated EV supply chains that are heavily supervised and subsidised by the state, granting the government power to oversee every step of the production process to ensure maximum cohesion and efficiency. There is some hope that Europe will be able to reduce its dependence on foreign entities in the coming years, with the recent discovery of a rare earth metals deposit in Northern Sweden, and the development of local battery manufacturers such as Northvolt. However, with production on the mine not set to start until 2027 and Northvolt struggling to scale-up their operations, Europe still has a long road to navigate before it will be able to localise its EV supply chains entirely.
Furthermore, because Europe has failed to establish cohesive, efficient EV supply chains and government subsidies at the level that China has, Chinese companies have been able to enter the European market as serious competitors by undercutting the prices offered by European manufacturers. This has brought an influx of cheap Chinese EVs into the European market, with the number of Chinese auto imports to Europe quadrupling over the past five years. The cheaper alternatives presented by Chinese companies are decreasing consumer demand for European-made EVs, threatening to derail Europe’s automotive industry. To close this price gap and strengthen European EV production, the European Commission is implementing tariffs ranging from 7.8 percent to 35.3 percent on EVs made in China, on top of a 10 percent levy already in place. However, there are concerns that these tariffs may not be high enough to achieve this objective, as Chinese automakers such as BYD hold such a large cost advantage over European competitors that they may be able to absorb the tariffs to keep prices low for consumers while still making a profit.
The issue of tariffs highlights a third challenge facing the EU as it wrestles to keep up with foreign EV competition: division from within. The vote to implement tariffs came on October 4th, with ten member states voting in support of the tariffs, five voting against, and twelve abstaining. The divided vote highlights both the differences in how EU member states view the future of Europe’s EV industry and the future of the EU’s relationship with China. Countries who voted against these tariffs, like Germany and Hungary, arguably did so for fear of Chinese retaliation, and to protect their relationships with the country whose manufacturers remain key suppliers in their supply chains. Even many of those with weaker ties to China were reluctant to defy it, with the high quantity of abstention indicating that while unwilling to support China directly, many member states are hesitant to paint themselves as adversaries of the rising power. However, the tariffs did ultimately pass the vote with the support of France and Italy pushing to decrease the competitive edge of Chinese EV companies in Europe, demonstrating that there remain some key players willing to stand against the dominance of Chinese industry. With so many opposing views on the best way forward, both in EV development and geopolitical relationships, it will be difficult for the EU to create and implement cohesive, effective strategies for EV development, which may hinder its ability to remain a key player in the automotive industry.
Europe needs to acknowledge that just because it has been a major power in the automotive industry in the past does necessarily mean it will be one in the future. We are now in a transitional period, and those able to pull ahead and assert themselves as leaders of the green energy movement will hold the power to shape it in a way that suits their own interests. Europe has long regarded itself as a hub for environmental advocacy and innovation, which has historically granted it the power to influence international norms and discourse regarding the environment, thus bolstering its position within the international system. If Europe falls behind in the EV race now, its position could shift from being a global leader on environmental policy to being forced to follow the paths paved by the nations overtaking it, like the US and China. The EV race will determine more than the future of Europe’s automotive industry – it represents a pivotal moment in the broader green energy movement that will decide who will shape the nature of environmental policy discussions in the 21st century.
Image generated using Adobe Firefly from the prompt ‘electric vehicles in the EU’.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of the wider St. Andrews Foreign Affairs Review team.
