Skip to main content

Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best experience possible, please make sure any ad blockers are switched off, or add https://experience.tinypass.com to your trusted sites, and refresh the page.

If you have any questions or need help you can email us.

Can the European car industry survive?

It’s being outdone by China and has failed to transition to electric vehicles. Can the big manufacturers on the continent go into overdrive? Or are they heading for a crash?

The production line at the Vauxhall motor factory in Luton. Photo: Daily Herald/Mirrorpix/Mirrorpix via Getty Images

Ever since the war, Europe’s car industry has been the all-conquering heavyweight – BMW, VW, FIAT, Skoda, Audi, Peugeot, RR, JLR, Ford and many more have seen off all comers. But over the last few years that has changed. It turns out that the European car industry is far from unbeatable. It is looking run down, slow on its feet and out of date; newer, younger, hungrier, rivals are circling for the kill and if the industry does not start a fightback soon, it will be out for the count. 

And now, after 119 years, Vauxhall vehicles will no longer be produced at Luton. The company’s parent company Stellantis, which also owns Citroen, Peugeot and Fiat, is struggling with all the same problems as the rest of the European car industry – but with the added uniquely British handicap of Brexit. 

But that is only the latest announcement. Just last week, Ford announced 4,000 job losses across Europe, 800 of them in the UK where it does not even make any cars. Volkswagen is struggling so much that it is even considering the previously unimaginable move of closing factories in Germany, something it has never done before and cutting pay by 10%. These are desperate measures by a company that now says it has just two years to turn things around.

So, what went wrong? European car making is under attack from several directions. It is trying to move away from petrol and diesel power towards hybrid and electric vehicles. Yet while governments including in the UK have set strict targets for sales and punishing fines for companies that do not go green as soon as possible, sales continue to disappoint.  

At the same time, cars are becoming ever more complicated and digitalised. They can interact with each other, read road signs and tell the garage when they have a problem. Some can even self-drive. Cars, in other words, are becoming computers on wheels. You are either winning the tech race or you are losing.

Meanwhile the European car industry is looking increasingly flabby. Its costs are 30% higher than its rivals, and competition is now coming in from the new kid on the block: China. 

This matters for all of us, because, as the old saying goes, “it takes a continent to build a car”. The factories are so large, the engineering so advanced and the supply chains so long and complicated that only the super heavyweight economies can cope. 

That means the employment and economic consequences of a declining European car industry will be felt in almost every corner of the continent. From Scottish sheep farmers and fabric weavers, to Ukrainian electronic suppliers – from Swedish iron ore mines and battery factories to every one of the six hundred car parts manufacturers in Portugal. 

The industry employs 13.8 million people across the EU, directly or indirectly, or 6.1% of all the jobs on the continent, and accounts for 8% of all manufacturing. Add to that another 737,000 in the UK, 146,000 of whom are directly employed in vehicle manufacturing, and you get some idea of the scale of the possible crisis. 

To survive, the industry is going to have to adapt to new technology, manage the huge transfer from carbon fuels to electricity, see off new competitors like Tesla and the Chinese, and reduce costs – all at the same time. And Europe is starting from a very low base. At present, only one of the top 15 electric vehicles in the world is made in the EU.

China is becoming a problem on many different fronts. It used to be a huge market for European car makers, especially German ones, but now has a huge home-grown industry that seems to have leapfrogged its European competitors. That’s especially so in the electric vehicle market. Chinese car makers are not just squeezing European makers out of their domestic market, they are also beginning to export. China is also now the place for multinational car companies to base their production, allowing them to take advantage of cheaper labour and huge supply chains.

As a result, Chinese car production overtook South Korea in 2021 and Germany in 2022. It now dominates the production of all the components needed for electric cars.  

The EU has responded by placing huge tariffs on Chinese electric cars, claiming that they are subsidised by the state. When Japanese car giants were slapped with European tariffs in the 1980s, they simply got round them by moving production to Europe. 

European manufacturers have also had to cope with the USA’s Inflation Reduction Act which has poured billions of dollars into America’s green transition. Now they are anxiously waiting for the start of the Trump presidency, with the threat of a trade war and tariffs on every European product sold in the US of between 10 and 20%.  Meanwhile the war in Ukraine has pushed up energy costs, disrupted supply chains and cut growth. This has led to a huge slump in EU sales, which are still lower now than they were in 2019. 

The industry is under attack from almost every side and the fightback is going to be painful, costly and risky. Even before the Vauxhall announcement in Luton, the British government was telling the car industry here that it would look again at the targets set by the last Tory government on the rate of transition to electric vehicles. The industry is already piling on more pressure. The Society of Motor Manufacturers and Traders now claims that its research “reveals that weak demand for EVs and the need to fulfil ever-rising sales quotas will cost the industry some £6 billion in 2024, and even more next year”. 

The industry claims it has had to offer £4 billion of discounts on electric vehicles just to encourage sales, but higher production costs and worries about the lack of the necessary electric infrastructure including charging points is making its life a misery. The Labour government will probably lower the targets and give the industry more time. Just days after the end of COP 29 the demands of the motor industry will trump climate change.

On the Continent it is going to be even more dramatic. There is far too much capacity, which means factories will have to close. Costs are too high, and the Draghi Report this year on the threats to the European economic model called for huge government investment in new technology, including in the automotive sector. VW, BMW and Stellantis, their unions and every town, city and region where they have a factory will be clamouring for that money. 

The car industry in Europe is also trying to find Chinese partners to help it compete. Stellantis, which has just announced the closure of its Luton plant, has a 20% stake in the Chinese start-up Leapmotor. That’s not something it highlighted when it announced the job cuts at Luton, but Leapmotor is already selling the resulting cheap cars across Europe and has a factory in Poland to get round those pesky tariffs. 

The future is still electric, but where the next generation of cars will be built and who will make them is all to play for. So far Europe has been too slow. It hasn’t landed any punches in years, and it is going to have to get fighting fit very quickly if it wants to survive.

Hello. It looks like you’re using an ad blocker that may prevent our website from working properly. To receive the best experience possible, please make sure any ad blockers are switched off, or add https://experience.tinypass.com to your trusted sites, and refresh the page.

If you have any questions or need help you can email us.

See inside the The speech Keir Starmer should give edition

The new rules are going to be a major headache, especially for small businesses – and most don’t even know it yet. Photo: TNE/Getty

The new Brexit time bomb

A refresh of EU product safety standards, GPSR, will be a disaster for the UK’s small exporters, with the government little help

Taoiseach Simon Harris speaks to the media as he casts his vote during the Irish general election. Photo: Dan Kitwood/Getty images

Ireland’s shaky stability

Bucking global trends, voters kept the incumbents in charge and Sinn Féin out of power in the general election. But Trump may mean