Monthly Briefing, Vol. 2. No. 1 (HU) February 2025
Losing the competition? European automotive industry in 2025
Csaba Moldicz
The European economy has lost much of its competitiveness in recent decades, but the European automotive industry has managed to remain the backbone of EU industry, and EU carmakers have not only maintained their competitiveness in global markets, but are also major employers in many countries. This position was first threatened by Chinese competition in the electric car markets, and now America’s trade policy changes may deal a severe blow to European carmakers’ hopes of maintaining and regaining competitiveness soon. This briefing looks at the competitiveness challenges facing European carmakers in a geopolitical and policy context. Before assessing the situation and drawing conclusions, we provide a general picture of European car markets and European carmakers, and then look at the potential negative impact of the developing trade disputes between the US, the EU and China.
Importance and Trends of the European Automotive Industry
According to the European Parliament, EU carmakers directly and indirectly employ 13.8 million people in the European Union, representing 6.1 percent of total EU employment. There are countries where this ratio is much higher. In Slovakia, Romania, Sweden, the Czech Republic, Hungary and Germany, the automotive industry accounts for more than 10 percent of total employment. At the same time, automotive companies generate about 8 percent of total European value added.
The competitiveness problems of the European automotive industry are clear, but they are also exacerbated by the earlier decision of the European Commission to stop the production of traditional cars (gas and diesel cars) and replace them with zero-emission cars from 2035. In our view, the problem stems from the fact that the EU is pushing to accelerate technological progress in an area where Chinese and other foreign carmakers appear to have strategic advantages over European companies, while at the same time restricting or discouraging cooperation with leading Chinese carmakers.
The results of what we believe is a hasty decision are already reflected in the market figures, as the share of battery electric cars in new car sales in the EU will triple by 2020, and the share of gasoline and diesel cars will fall from 47.5 percent to 35.3 percent and from 29.9 percent to 13.6 percent, respectively.[1] These figures were welcome in themselves, but the increase in battery electric cars also means a loss of market for European car manufacturers. This trend is not limited to the European markets, we can also see a similar trend in the car sales of European manufacturers in China. In 2024, BMW’s sales fell by 2.3 percent in total vehicle sales, which is a relatively good number since Mercedes-Benz Cars and Porsche car sales in China fell by 3 percent and Volkswagen’s Audi suffered a 12 percent drop last year.[2]
The key competitiveness problem is that the heart of the new technology is electric batteries, and European carmakers have significant disadvantages in this area. The Roland Berger report summarizes China’s strategic advantages as follows: “Vertical integration has, for example, helped many Chinese OEMs gain control over key components in the supply chain. They not only manufacture electric vehicles, but also produce their own batteries, as well as making bumpers and other key parts in-house.”[3] Vertical integration at this point means that Chinese car makers or their partners have also excellent positions in battery production. According to Statista, there is no European battery manufacturer among the top 10 global companies, 6 Chinese companies, 3 Korean companies and 1 Japanese company made it into the top 10. The combined capacity of Chinese companies accounts for 64.9 percent of the world’s total production![4]
As clear evidence of the deteriorating competitiveness of European products, the share of Chinese companies in battery electric car sales in the European Union will rise from 4.9 percent in 2020 to 29.3 percent in 2024. At this point, it is worth pointing out an important trend that is often neglected by observers. The majority of Chinese-made battery electric cars imported into the European Union are not Chinese brands, but foreign brands manufactured in China. In 2024, 21.7 percentage points of the above-mentioned 29.3 percent will come from these Chinese brands. This trend draws our attention to the importance of a friendly business environment in China that welcomes foreign companies and provides many incentives to produce there.
While the European Commission argues that weak European competitiveness is due to heavy Chinese subsidies, we should point out that the issue is much more complex. The European Commission argued for its policy as follows: “On 4 October 2023, the European Commission initiated anti-subsidy investigations into EU imports of battery electric vehicles from China, on the grounds that these imports were being subsidized and thereby detrimental to the EU industry. Provisional countervailing duties (ranging from 17.4 % to 36.3 % entered into force on 5 July 2024. The definitive measures were supported by the Member States on 4 October 2024.”[5] Unlike the mainstream Western narrative, China offers state support even for Western multinational companies in China, not only Chinese brands. Another line of the story is that the competitiveness of foreign brands in China also shows the robustness of the industrial base in China and the importance of the clusters of supplier firms that have emerged in China over the last four decades, while Western Europe – as a result of flawed policies – believed that the future of the European economy lay in the services sector and not only allowed the massive exodus of European manufacturing firms to developing countries, but also supported the process by pointing to the importance of greening the economy. As a result, Europe has been plagued by a disappearing industrial base and “runaway industries” for several decades.
The clear signs of deteriorating conditions in the European car industry are already strongly reflected in the figures. Job cuts and factory closures have been announced in European car manufacturing and battery production through the end of 2024, and we don’t expect these announcements to stop anytime soon. In September 2014, new car registrations were down 18.3 percent compared to the corresponding month in 2023, and even battery electric car registrations are showing a deep decline of 43.9 percent in September 2024 compared to September 2023.[6]
Policy steps
There are two major policies that will affect the future of the European automotive sector:
- On the one hand, the European Commission and the European Parliament want to put an end to the sale of petrol and diesel cars by 2025. At the same time, we would not be surprised if the implementation of this policy is postponed due to the competition problems mentioned above.
- On the other hand, Trump’s tariff measures seem to target European carmakers. The American president often mentions that EU tariffs on American cars are 10 percent, while the US currently levies only 2.5 percent tariffs on cars imported from the European Union. Deputy Chief of Staff Stephen Miller told Fox News: “The German car — or a European car sent to America is taxed at 2.5 percent — or basically zero. This is a major reason why the U.S. auto industry has been getting hammered and hemorrhaging jobs for so long … ”[7],[8]
If the United States were to impose higher tariffs on cars from the European Union, the measure would hit German manufacturers hard, as 73 percent of EU cars exported to the United States come from Germany.[9] According to Politico, if the EU made concession to the United States and lowered current tariff rates to 2.5 percent, it also had same terms to China based because of the most favored nation principle. The article argues as follows: “If the EU offers to cut its tariffs on cars to 2.5 percent from 10 percent, it will have to offer the same MFN terms to Chinese manufacturers — undermining the additional duties it imposed last year on made-in-China electric vehicles after an investigation found evidence of huge state subsidies.”[10] The article quotes an anonymous Brussels-based lawyer who thinks it would be a great gift to China, since China would not be forced to offer anything similar to the EU. In our view, the argument misses the point that even in this case, European carmakers would be at a strategic disadvantage in the Chinese market, but not because of tariffs, but because of efficiency problems.
Clarissa Hahn highlights the potential consequences of the Trump administration’s proposed 25 percent tariff on European car imports to the U.S., a significant increase from the current 2.5 percent rate. In 2023, European automakers exported €56 billion worth of vehicles and components to the U.S., accounting for 20 percent of the EU’s total automotive export value, making the U.S. the most important market for EU-made vehicles, she argues. The German and Italian automotive industries are particularly vulnerable, with projected export declines of 7.1 percent and 6.6 percent, respectively. This could lead to a sharp decline in EU automotive exports to the US, with negative consequences for the broader European economy, given that the automotive sector supports some 13.8 million jobs in the EU, she believes.[11]
Hungary’s place in the EU automotive industry
As we have seen in recent years, the investment of battery factories in Hungary has triggered political debates, but we believe that most of them have been artificially generated by left-wing and liberal forces in Hungary in order to gain popularity among the population. This is how Euronews undoubtedly portrays the situation in a biased manner: “Hungary in particular is endeavoring to attract battery producers to the country – and, according to expert estimates, is paying well over two billion euros in direct and indirect subsidies to do so. South Korean battery producers are already active in Hungary today. The first incidents involving solvent leaks have already occurred as well.”[12] The article draws a connection between Hungary’s allegedly “pro-Russian” foreign policy, which aims to secure cheap energy for the country, and the Chinese investment in energy-intensive battery production.
What the criticism fails to understand, we can summarize in the next three points:
- Hungary needs investments in the production of battery electric cars, because the backbone of Hungary’s economy is the automotive industry for about 20 percent of the GDP and with the absence of these investments, Hungary’s economic development would be delt a severe blow.
- Negative effects can occur not only in terms of GDP, but also in terms of employment. We should not forget that the above-mentioned competitiveness problems of European car manufacturers can take the form of plant closures and massive layoffs, which can also affect Hungary. According to Allianz Trade estimates, companies in the manufacturing sector could operate with 30 percent fewer people in the future. This would mean the loss of 730,000 jobs in the European Union, including at least 260,000 jobs at risk in Germany. Since Germany has a huge influence on the Hungarian car industry, this could also have serious consequences for our country. To put it another way, the new jobs created by the Chinese companies can compensate the lost jobs in the worst scenario, in the best scenario they can add to the existing jobs in Hungary.
- Battery plant investments are often criticized for their allegedly low domestic value added. According to the latest data of KSH, the domestic value added of these investments varies between 16 and 18 percent, which is higher than the domestic value added of automotive investments.
According to Járdi, around 8000 billion HIF investments are ongoing in Hungary’s automotive industry at the moment. He also makes a list of these investments:
- “the Chinese CATL investment in Debrecen will cost HUF 2,900 billion, with production expected to start in early 2025,
- BYD, another Chinese company, announced last December that it will build its first European car plant in Szeged (it already has a bus factory in Komárom), with a total investment of HUF 2,000 billion,
- China’s Sunwoda also announced last year that it will build a 580 billion euro battery plant in Nyíregyháza,
- China’s Hayaou Cobault’ s cathode plant in Acs is also due in 2023, with an investment worth HUF 520 billion,
- China’s Eve Power, the world’s ninth largest battery manufacturer, is building its first European plant in Debrecen with a 482 billion euro investment,
- South Korean W-Scope’s Nyíregyháza investment will break ground in October 2022, worth HUF 290 billion
- The South Korean Eco Pro cathode plant in Debrecen will be built with HUF 280 billion,
- the big Western car manufacturers that have long been present in Hungary are not lagging behind with their developments either, with Mercedes in Kecskemét converting its production lines to electric car production with HUF 400 billion,
- Audi is investing HUF 120 billion in Győr to produce electric motors from 2025”[13]
Since these figures were compiles, the Chinese Xinzhi announced a HUF 50 billion investment in Hatvan, in the factory electrical car parts will be produced.[14]
As we have seen in the above analysis, the weakness of the European automotive industry is the lack of vertical integration, which Chinese companies have achieved. With the battery plant investment, Hungary is building vertically integrated supply chains, unlike some of its European competitors. The advantages of these supply chains were underlined by the disruption of local supply chains during the global pandemic. In this way, Hungary is building resilient supply chains that contribute to production security in this strategically important sector of the economy. Current automotive production facilities in Hungary are capable of producing 450-500 thousand vehicle units, while the above investments will increase this figure to approximately 750 thousand units per year.
Summary
The European automotive industry, which we think is a key pillar of the EU’s economy employs 13.8 million people, and it is facing severe competitiveness challenges due to Chinese and American trade policies now. Despite its dominance in the par, European car manufacturers are struggling to keep pace in both the traditional car vehicle market and the rapidly evolving electric vehicle (EV) market.
The EU’s official policy to phase out gasoline and diesel cars by 2035 has accelerated the transition to EVs now. It can be questioned whether a hasty greening policy achieves the final goal to stop climate change if other major players are still producing gasoline and diesel-fueled car. Under current policy conditions, European automakers face significant disadvantages, especially because of weaknesses in battery production. China dominates this sector, with Chinese companies accounting for 64.9 percent of global battery production. European carmakers lack vertical integration, whereas Chinese manufacturers not only produce vehicles but also control key supply chain components, including battery production.
Market trends also reflect this shift: while battery electric vehicle sales in the EU tripled since 2020, European automakers have lost market share. Chinese manufacturers’ share of the European battery electric vehicle market rose from 4.9 percent in 2020 to 29.3 percent in 2024. This trend extends to China, where European brands like BMW, Mercedes-Benz, and Volkswagen’s Audi have suffered declining sales in 2024.
The European Commission believes that its declining competitiveness is partly caused by Chinese subsidies, and therefore it launched an anti-subsidy investigation in 2023 and imposing countervailing duties of 17.4 percent to 36.3 percent on Chinese EVs in 2024. However, China supports not only its domestic brands but also foreign companies operating within its borders, fostering a business-friendly environment.
At the same time, American trade policy under Donald Trump presents another threat for the Europea carmakers. The U.S. currently imposes a 2.5 percent tariff on European cars, while the EU levies 10 percent on U.S. car imports. A proposed – and we believe justified – increase in U.S. tariffs to 25 percent would severely impact German and Italian car manufacturers, who rely heavily on exports to the American market. The irony of the situation is that a reduction in EU tariffs to 2.5 percent could benefit China due to the most favored nation principle, though the core issue remains European efficiency, not just tariffs, we are on the opinion.
In recent years, Hungary has strongly embraced foreign battery investments, primarily from China and South Korea, to secure the future of its automotive sector, which accounts for 20 percent of its GDP. Investments in battery plants by Chinese companies like CATL, BYD, and Eve Power total billions of euros. While these projects have faced political opposition in recent months, Hungary is positioning itself as a key European battery hub.
The European automotive sector’s key weakness remains its lack of vertical integration, which stands in the way of greater competitiveness in the electrical vehicles era. We think, that without significant policy shifts and industrial restructuring, European manufacturers risk further decline, with factory closures and job losses already emerging.
[1] European Parliament 2024. The crisis facing the EU’s automotive industry. https://www.europarl.europa.eu/RegData/etudes/ATAG/2024/762419/EPRS_ATA(2024)762419_EN.pdf
[2] Victoria Waldersee January 13, 2025. German premium carmakers’ sales battered in China and Germany amid slowdown. Reuters, https://www.reuters.com/business/autos-transportation/bmw-group-annual-sales-fall-weak-demand-china-germany-2025-01-13/
[3] Roland Berger 2024. Cost-efficient automotive production Rising to the challenge. https://content.rolandberger.com/hubfs/Roland_Berger_Mastering_cost_efficient_automotive_production_ENG.pdf
[4] See the database of Statista! https://www.statista.com/statistics/235323/lithium-batteries-top-manufacturers/
[5] European Parliament 2024. The crisis facing the EU’s automotive industry. https://www.europarl.europa.eu/RegData/etudes/ATAG/2024/762419/EPRS_ATA(2024)762419_EN.pdf
[6] Ibid!
[7] Tim Hains Miller, February 9, 2025. Trump Trade Action Against Europe Will Offset EU Regulations and VAT Taxes on American Products. Fox News, https://www.realclearpolitics.com/video/2025/02/09/miller_trump_trade_action_against_europe_will_offset_eu_regulations_and_vat_taxes_on_american_products.html
[8] Another area where Americans find European practice predatory, is tech companies. Miller said in this context: “Here’s another area where Europe is engaging in predatory practices. They’re fining our tech companies billions and billions of dollars. These are revenues and jobs that should be here in the United States. Tech companies are subject to digital taxes, censorship, and onerous financial penalties that are tens of billions of dollars every single year.” See Miller, February 9, 2025!
[9] Politico February 11, 2025. European carmakers in crossfire of US-EU trade war. https://www.politico.eu/article/european-carmakers-crossfire-united-states-europe-trade-war/
[10] Ibid!
[11] Clarissa Hahn January 22, 2025. Driving into uncertainty: How Trump’s tariffs could derail Europe’s automotive powerhouse. Oxford Economics Blog, https://www.oxfordeconomics.com/resource/driving-into-uncertainty-how-trumps-tariffs-could-derail-europes-automotive-powerhouse/
[12] Hans von der Brelie January 8, 2025. Factories from China spark geopolitical debates in Europe. Euro news, https://www.euronews.com/my-europe/2025/01/08/factories-from-china-spark-geopolitical-debates-in-europe
[13] Rolánd Járdi, March 21, 2024. Bemutatjuk Magyarország nagy autóipari térképét – így rajzolja át hazánkat a zöld forradalom. VG. https://www.vg.hu/vilaggazdasag-magyar-gazdasag/2024/03/bemutatjuk-magyarorszag-nagy-autoipari-terkepet-igy-rajzolja-at-hazankat-a-zold-forradalom
[14] István Bereznay, January 13, 2025. Szijjártó Péter bejelentett egy új nagyberuházást, csaknem 900 munkahelyet ígért. https://index.hu/gazdasag/2025/01/13/autogyartas-autoipar-szijjarto-peter-kina-beruhazas-xinzhi-vallalat/