At first glance, the European automotive sector seems to be in good shape. Factories are running, car dealerships are unveiling new models, and EU officials are doubling down on their vision of an electric, eco-friendly future. However, beneath the surface, a crisis is unfolding.
New regulations, the European Green Deal, and the looming 2035 ban on internal combustion engine (ICE) vehicle sales are just the tip of the iceberg. Beneath the rhetoric of climate protection lies a harsh reality—rising production costs, disappearing jobs, and a rapidly shifting global market that may leave European car manufacturers struggling to survive.
While China and the United States adapt their strategies to changing consumer preferences, Europe risks losing its once-dominant position in the automotive world. Will the continent defend its auto industry, or will it hand it over to competitors on a silver platter?
The European Auto Industry in Crisis
The numbers paint a troubling picture. In 2024 alone, the European automotive industry saw 104 restructuring announcements, leading to over 88,000 job cuts. This is no minor issue—the auto industry accounts for €1 trillion of European GDP and supports 13 million jobs.
At the same time, competitors are thriving:
- China’s electric vehicle (EV) manufacturers—backed by massive government subsidies—are expanding their global market share.
- The U.S. has removed EV subsidies, giving consumers more choices and allowing ICE and hybrid vehicles to compete fairly.
- Europe, in contrast, is pushing an aggressive transition to EVs, despite the fact that many consumers still prefer ICE or hybrid vehicles due to their affordability and longer range.
The January 2025 Strategic Dialogue
Recognizing the crisis, the European Commission launched a public consultation on the future of the auto industry in early 2025. However, participation was low, with few ordinary citizens showing interest. Meanwhile, behind closed doors, 22 major auto corporations met with EU officials in what was called a Strategic Dialogue—a far more significant and influential discussion.
The result? A comprehensive action plan is set to be revealed in March 2025, aiming to ensure the competitiveness of the European car industry. However, some troubling signs emerged from the meeting:
- Only European and Chinese stakeholders were included. The American-French-Italian automotive giant Stellantis was left out, raising questions about political motivations.
- Chinese-owned Volvo was invited, allowing China to track discussions in real time.
- Working groups were formed to focus on green transformation, supply chains, technological innovation, and employment restructuring—suggesting job cuts are far from over.
While the EU claims this dialogue will help the industry thrive, skeptics argue that Europe is already lagging behind and might struggle to reverse its course.
Germany: The Epicenter of the Crisis
Germany, home to industry giants like Volkswagen, BMW, and Mercedes-Benz, is at the heart of this storm.
Volkswagen: Cutting Jobs to Stay Afloat
Volkswagen, which comprises 10 major brands and 114 production plants worldwide, saw a 1.4% drop in sales in 2024. Sales in China—a key market—plummeted by 8.3%, while Europe saw a 1.8% decline.
The company responded by:
- Announcing 35,000 job cuts in Germany.
- Closing multiple assembly lines and moving production of its iconic Golf model to Mexico in 2027.
- Shifting its focus to electric models like the VW ID.3, despite sluggish demand.
BMW and Mercedes-Benz: Struggling to Keep Up
BMW and Mercedes-Benz are also suffering:
- BMW’s overall sales dropped by 4% in 2024, with Mini sales collapsing by nearly 18%.
- Mercedes-Benz saw a 23% drop in EV sales—a significant warning sign for the industry’s future.
With declining sales and rising costs, Germany’s auto sector is undergoing its worst crisis in decades.
The Chinese Advantage: Why Europe Is Losing
While European automakers struggle, China has strategically positioned itself as the global leader in electric vehicles.
Massive Government Support
From 2009 to 2023, China poured $230 billion into EV subsidies, ensuring its manufacturers had the upper hand. The results speak for themselves:
- Chinese companies like BYD and Geely now dominate the EV market.
- China controls global lithium and rare earth supplies, making European automakers dependent on Chinese materials.
- China leads in battery production, a crucial component of EVs.
Better, Cheaper, and Smarter Cars
According to analysts, Chinese EVs are essentially “AI on wheels”, while European automakers are still struggling to develop smart vehicle software.
- Chinese EVs are more affordable than their European counterparts.
- They integrate cutting-edge AI and digital features, making them more attractive to modern consumers.
- China has successfully pushed European manufacturers out of its domestic market, reducing their market share from 24% to 15% in just five years.
This means that European automakers are losing both at home and abroad—unable to compete with China’s cost efficiency and technological edge.
The U.S. Approach: A Return to Free Market Principles
In a move that could shake up the industry, Donald Trump recently signed an executive order eliminating subsidies for EVs in the U.S. This is expected to:
- Allow hybrid and ICE vehicles to compete fairly, mirroring trends seen in Germany.
- Encourage automakers to focus on hybrid technology, which has a better balance of efficiency and practicality.
- Possibly reduce demand for EVs in the U.S., as seen in Europe.
At the same time, Trump has introduced a 25% tariff on European cars, adding another challenge for EU automakers.
The EU’s Dilemma: Stick to the Green Deal or Change Course?
The 2035 ICE Ban and Stricter Regulations
The EU’s 2035 ban on fossil fuel-powered cars was designed to accelerate the green transition. However, it is now backfiring:
- New emissions regulations (Euro 7) are making car production more expensive.
- Battery technology still lags behind consumer expectations.
- Carmakers may be forced to pay billions in CO2 fines under the CAFE regulations, further crippling the industry.
Ironically, these regulations could end up benefiting Chinese manufacturers—many of whom already exceed EU emissions targets, allowing them to sell “carbon credits” to struggling European automakers.
Will the EU Adapt?
The simplest solution to this crisis is to follow the U.S. approach:
- Eliminate EV subsidies and allow the free market to decide.
- Promote hybrid vehicles, which offer a practical middle ground.
- Ease emissions regulations to reduce production costs.
- Delay or modify the 2035 ICE ban to prevent further market instability.
However, EU leaders remain committed to the Green Deal, making a policy shift unlikely—at least for now.
Final Thoughts: A Turning Point for European Automakers
The European automotive industry is at a crossroads. While China is winning the EV race and the U.S. is giving consumers more choice, Europe is stuck between ideological commitments and economic realities.
If the EU fails to adapt, its automakers risk being overtaken by Chinese competitors and losing ground to American manufacturers. The coming months will reveal whether European leaders are willing to make the tough decisions needed to save one of their most critical industries.
Will Europe wake up in time, or will it watch as its once-great auto industry fades into history? The answer will define the continent’s economic future for decades to come.
