What are the forecasts for the automotive industry?

Europe must take immediate action to prevent the further decline of its car industry. Immediate action is needed to speed up the development of the ecosystem that is essential for electric cars. Without action, the gap with China and the United States will continue to widen, with serious consequences for the European economy, particularly in terms of exports, employment and innovation. According to our latest report about perspectives for the automotive industry, Brussels is not offering enough incentives in the face of too much regulation.

The report paints a bleak picture for European car manufacturers, with Germany in the lead. The automotive industry is of vital importance to the European economy, accounting for 6% of total EU production. With almost 950,000 companies, it employs 6.5 million people. What's more, as a driver of innovation, the sector is the biggest investor in research and development in the EU, with almost €73 billion to be invested by 2022.

The transition to electric driving is proceeding at a tumultuous pace due to geopolitical tensions, falling demand and regulatory uncertainties. There are major regional disparities. China is challenging the traditional automotive leaders. Europe and the United States, wary of dependence on China and the impact on their own automotive industries, are reacting by increasing trade barriers and surveillance. The report looks at specific regional features.

China is playing a crucial disruptive role, particularly in the field of electric vehicles. China has a head start, which is dramatic for European carmakers, who have been slow to react. Efforts are certainly underway to catch up. European manufacturers face fierce competition, especially when it comes to the mass market for affordable middle-class cars. This means lower prices and tighter margins. Those who are left behind will struggle to survive. We are already seeing an increase in bankruptcies in the automotive sector. Not only are the margins of Chinese carmakers higher, but they also have far more resources, because they are purely state-owned enterprises. This situation is forcing European manufacturers to produce at a loss, which they will not be able to do for much longer.

 

From 2035, the sale of new petrol and diesel cars will be banned in the EU. Johan Geeroms, our Director of Risk Underwriting Benelux, asks: "What alternatives are being considered? In the United States and especially in China, there is coordinated support and a global strategy. 15 years ago, the Chinese government fully committed itself to EVs, notably by building large battery factories. Europe is content with a few scattered incentives. In 20 EU countries, infrastructure incentives (such as subsidies for charging points and stations) are lacking. Very little is being done to promote the uptake of electric cars. And the incentives introduced in 2024 are still being scaled back, particularly in Germany and France, where subsidies are restricted due to budgetary constraints."

Johan Geeroms also stresses the need for measures in the field of battery and software technology. "The automotive industry is currently making a decisive transition from the power of engines to the possibilities offered by batteries and software. In this area, China is well ahead. Batteries represent the main cost in the production of an electric car, accounting for around 40% of the total cost. Six of the world's ten largest battery manufacturers are based in China, while the other four are also in Asia. This dependence is dangerously high. In response, governments have stepped up restrictions and monitoring of Chinese car imports. For example, Joe Biden's American Inflation Reduction Act (IRA) offers up to $7,500 in tax breaks for the purchase of new electric vehicles, but excludes those fitted with Chinese components."