The European automotive industry has entered a period of the greatest transformation in decades. Growing competition from Chinese electric vehicle manufacturers is changing the balance of power in the global automotive market and forcing European companies to redefine their strategies. At stake is no longer just car sales, but the maintenance of the entire industrial ecosystem in Europe.
A decade ago, European corporations treated China mainly as a sales market and a centre of relatively cheap production. Today the situation is completely different. Chinese manufacturers have become full-fledged competitors, technologically capable of competing with the world’s biggest brands.
China’s advantage does not come solely from lower labour costs. The foundation of its position is the full integration of the value chain. The Middle Kingdom has built a dominant position in battery production, processing of strategic raw materials, electronics and components for electromobility.
It is this integration that allows Chinese producers to scale up production faster and compete more aggressively on price. European companies have for years been optimising margins and global supply chains. China has simultaneously been building control over the key elements of the future automotive market.
Today the effects of this strategy are visible across Europe. Chinese brands are increasing their market share of electric cars, offering models that are cheaper and often technologically competitive with their European counterparts.
Price pressure is becoming the biggest problem for EU manufacturers
The biggest challenge for European automotive is not the growth of Chinese producers’ market share per se, but the scale of the cost pressure they generate.
The European automotive industry operates under conditions of high energy costs, rising labour costs and increasingly stringent environmental regulations. Meanwhile, Chinese producers benefit from extensive state support, raw material advantages and lower production costs.
As a result, European corporations find themselves in a difficult strategic position. Maintaining high prices limits competitiveness against Chinese models. On the other hand, an aggressive price war threatens to reduce profitability and limit investment capacity.
The problem is particularly visible in the electric car segment. For years, European producers focused mainly on the premium segment, where margins were higher. The electromobility market, however, requires a greater presence in the mass segment, where China’s cost advantage is much more acutely felt.
This is why some European producers are beginning to scale back their ambitions for a rapid transition to full electromobility or are delaying some investments.
The automotive transformation is changing the entire industry
The importance of the automotive sector for Europe extends far beyond car sales itself. The industry accounts for millions of jobs, a huge share of industrial exports and an extensive network of component suppliers.
Therefore, problems in European automotive quickly translate to the entire industrial sector. This applies especially to countries heavily dependent on automotive production, such as Germany, the Czech Republic, Slovakia and Poland.
The technological transformation further complicates the situation. Producing electric cars requires a different structure of skills and components than producing internal combustion cars. Electric motors have fewer parts, meaning less demand for some traditional subcontractors.
For many European companies, this means having to undertake an expensive restructuring of their business models. Some will have to move into new technological segments. Others may gradually lose importance as production of internal combustion engine components declines.
Poland can both gain and lose
Poland finds itself in a particularly interesting position. On one hand, the country is an important element of the European automotive supply chain. On the other hand, the sector’s transformation may change the structure of competitive advantages.
Poland’s developed lithium-ion battery production sector and components for electromobility remain a significant asset. In recent years, the country has become one of the largest battery producers in Europe, attracting investment from global corporations.
At the same time, some Polish companies remain heavily dependent on traditional internal combustion automotive. This applies to manufacturers of mechanical components, drive systems and engine parts.
In practice, this means that the Polish automotive sector is entering a period of deep technological selection. Companies capable of adaptation can benefit from the market’s restructuring. Enterprises based solely on traditional competencies will be exposed to a gradual loss of orders.
Europe responds with industrial policy
Brussels is increasingly moving away from its earlier approach based solely on market liberalisation. Growing competition from China is leading the European Union to make more active use of industrial and trade policy instruments.
Anti-subsidy duties, support for European battery producers, investment programmes and attempts to build more independent supply chains for strategic raw materials are becoming increasingly important.
At the same time, Europe is trying to avoid a full-blown trade confrontation with China. This is a difficult balance. On one hand, the Union wants to protect its own industry. On the other, it remains heavily dependent on Chinese components, raw materials and technologies related to electromobility.
This is why European strategy is becoming increasingly pragmatic. The priority is not a complete decoupling from China, but reducing the most risky strategic dependencies.
The future of automotive will be decided by technology and energy
In the coming years, competition in the automotive industry will play out primarily around energy costs, software, batteries and production automation.
The car is increasingly becoming a technology product and less a purely mechanical one. This means that companies capable of rapidly developing digital systems, integrating data and scaling battery production will gain the advantage.
Europe still has strong engineering competencies and an advanced industrial base. The problem, however, is that technological advantages are becoming harder to maintain with significantly higher energy and production costs than in Asia.
Therefore, the future of European automotive will depend not only on the innovativeness of manufacturers. Equally important will be energy policy, access to strategic raw materials and the ability of European states to pursue a more active industrial policy.
For Europe, the stake is no longer just its position in the car market. It is about maintaining one of the most important pillars of all European industry.
