Europe's Auto Industry Faces Chinese Competition And Challenge In Transition To EVs The car industry accounts for 7 per cent of the Europe's DGP and 6 per cent of all jobs. The Continent has always dominated the ICE industry for over a century but it has no lock on battery technology.

Europe's automotive sector is facing both pressure to decarbonize and competition from China which make the next decade very crucial for it.

The previous European Commission launched the European Green Deal aimed at making the bloc climate neutral by 2050 — and slashing emissions from vehicles played a key part.

However, the focus is very different right now. The policies are expecting an economic toll. Where narrative is still that all-electric vehicles is the future; but reducing carbon emission is facing increasing hurdles.

The car industry accounts for 7 per cent of the Europe's DGP and 6 per cent of all jobs. The Continent has always dominated the ICE industry for over a century but it has no lock on battery technology.

European automakers, including Volkswagen, Mercedes-Benz, Renault, and Stellantis, are facing significant challenges as they adapt to the transition to battery-powered vehicles. This shift is complicated by a new, formidable competitor: China. Let's delve into the current situation in Europe, examining how it has arrived at this crossroads and what steps it is taking to navigate the shift to greener vehicles while balancing economic and political concerns.

The Path to the Present

Road transport is responsible for 16 per cent of the EU's total emissions. In response, the European Commission introduced a law as part of the Green Deal that mandates the end of sales for new internal combustion engine (ICE) vehicles starting in 2035. To ensure compliance, the law sets interim goals, including a requirement for carmakers to cut emissions by 15 per cent by 2025 compared to 2021 levels. Failure to meet these targets will result in fines of €95 for each gram of CO2 per kilometre exceeding the limit for every non-compliant vehicle sold.

The most straightforward way for manufacturers to meet these targets is by increasing their electric vehicle (EV) offerings. However, this process is more complex than anticipated. Adoption rates for EVs are stagnating because automakers are aiming at the mainstream market rather than just early adopters. Key barriers include concerns about driving range, insufficient charging infrastructure, and high vehicle prices. Many Western manufacturers have concentrated on high-end, expensive electric models to finance the transition.

The Chinese Challenge

China has become a major player in the global EV market, presenting a serious challenge to European carmakers. Chinese manufacturers have heavily invested in EV technology, establishing a cost-efficient supply chain that allows them to produce cheaper vehicles packed with advanced features. As they look to expand into new markets, European and US policymakers have responded with tariffs to protect domestic industries.

The US has imposed a 100 per cent tariff on Chinese-made EVs, effectively barring them from the American market. The EU has also implemented tariffs ranging from 19 per cent to 37.6 per cent. Despite these barriers, Chinese manufacturers can still remain competitive in the European market due to their low production costs. To circumvent these tariffs, several Chinese companies are setting up production facilities within the EU, making the tariffs a minor obstacle rather than an insurmountable barrier.

European Automakers' Strategies

In response to these challenges, European automakers are diversifying their product lines and increasingly focusing on hybrid models which combine both traditional engines and electric batteries. Hybrid-electric vehicles have seen a rise in market share, with their overall presence reaching nearly 30 per cent in recent months, according to the European Automobile Manufacturers' Association (ACEA).

European carmakers are thus caught in a delicate balance: they must rapidly accelerate their transition to electric vehicles while managing the economic impact and responding to growing international competition.

Any other options?

One final fuel type is being discussed: hydrogen. The most notable car brands to invest in hydrogen are Toyota, Hyundai and BMW.

Hydrogen is not taking off, though.

In Germany — the most enthusiastic market for hydrogen passenger cars — only 2,260 fuel-cell powered cars are on the road, compared to 1.5 million EVs, according to the National Organization for Hydrogen and Fuel Cell Technology.

Hydrogen would also require its own infrastructure, including supply and storage along with plants. That poses even worse range anxiety issues for drivers as all-electric vehicles.

These challenges create a tough environment for Europe's automotive sector, with significant repercussions for both the region's economy and political landscape.