Executive Summary
- The shift to battery electric vehicles is a game changer for the European automotive industry. Alternative energy vehicle sales reached a record-breaking 4.4mn units in 2022, representing 47% of all new vehicle registrations in Europe. Battery electric vehicles (BEVs) led the way, with sales booming by +28%, representing 12% of all new vehicle registrations. With the 2035 phase-out of internal combustion engines (ICE) looming, the automotive sector is on the cusp of a complete shake up, facing a transformation of its supplier base, changing customer needs, competition from new entrants and the reality of a less car-centric society.
- But the number one risk is China. Having recognized the potential of electric vehicles 15 years ago, China has since invested vast resources in building a competitive electric vehicle ecosystem. As a result, it now leads the global EV landscape, selling over double the number of BEVs in 2022 compared to Europe and the US combined, while also holding a competitive edge in nearly all aspects of the BEV value chain. Because they account for more than 80% of EV sales in their country, Chinese brands have seen their market shares climb from less than 40% in 2020 to close to 50% in 2022, while the country’s automotive trade balance went from a -USD31bn deficit to a +USD7bn surplus over the same period. At the same time, already in 2022, three of Europe’s best selling BEVs were Chinese imports. As BEVs eventually grow to account for all new car sales in Europe, Europe-made cars are likely to be substituted by those made in China – irrespective of whether they are manufactured by a Chinese, American or European company.
- European carmakers could collectively lose more than EUR7bn in annual net profit by 2030. If Chinese manufacturers increase their domestic market shares to 75% by 2030, total sales in China by European carmakers would fall by -39%, with local production falling from an estimated 4.4mn units to 2.7mn in 2030. We also find that if European imports of China-made cars reach 1.5mn vehicles in 2030, equivalent to 13.5% of the EU’s 2022 production, the value added impact on the European economy would stand at EUR24.2bn in 2030 for the automotive sector, the equivalent of 0.15% of the region’s 2022 GDP. But the automotive-dependent economies of Germany, Slovakia and Czech Republic could face an even bigger hit (0.3% to 0.4% of GDP).
- What can policymakers do? Given the strategic importance of the automotive sector for the European economy, policymakers could seek reciprocal trade terms with China and the US, as well as promote BEV adoption through improved charging infrastructure. Moreover, allowing Chinese investment in local car assembly could have more value added generated in the region, while increasing self-sufficiency in raw materials critical for battery manufacturing and investing in next-generation battery technologies will further help Europe’s automotive sector prepare for tomorrow’s challenges.