A report by the German Press Agency said that the automobile industry sector in Europe is facing a crisis, at a time when the electric car market is suffering from a recession.
The report added that this undermines the European Union’s ambitious goals to end sales of new diesel and gasoline cars by 2035.
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The report pointed out that attempts to boost sales of electric cars by offering government rewards for purchasing them have not succeeded, while strong competition from Chinese electric car manufacturers limits sales in Europe.
The report reviewed the reasons behind these problems and the prospects for European Union intervention to confront these challenges.
1- The European automobile industry requests urgent assistance
The report says that European car manufacturers requested “urgent” assistance from the European Union last September, amid declining sales of electric cars, as well as stricter emissions regulations scheduled to come into force next year.
The European Automobile Manufacturers Association said that the industry is doing its best to comply with decarbonization goals, but these efforts are hampered by problems including the decline of the electric car market, the lack of charging infrastructure, and weak manufacturing competitiveness in the European Union.
The European Association of Automobile Manufacturers, an industry lobby group, submitted a formal request to the European Commission, calling on “the European Union institutions to put forward urgent relief measures before new CO2 targets for cars and minibuses (vans) come into force in 2025.”
According to the report, Europe is racing to produce more electric cars as part of the environmentally friendly green transition, with the deadline for the European Union phasing out the sale of fossil fuel engine cars by 2035 approaching.
However, after years of growth, electric car sales began to decline at the end of 2023, and now represent only 12.5% of new cars sold on the continent.
The report quotes the European Automobile Manufacturers Association as saying: “We lack the basic conditions to achieve the necessary boost in the production and adoption of zero-emission vehicles: charging and hydrogen refueling infrastructure, as well as a competitive environment for manufacturing, affordable green energy, purchasing incentives, taxes, and Safe supplies of raw materials, hydrogen and batteries.”
The association asked the European Commission to provide a date for reviewing carbon dioxide regulations, scheduled for 2026 and 2027. The Minister of Transport of the Czech Republic, Martin Kupka, wants to advance the date for reviewing the repercussions of the ban on the sale of new cars powered by internal combustion engines in the European Union to 2025.
According to Sofia Alves, of the European Commission, the continent’s automotive industry will have to transform in order to achieve Europe’s goals of achieving a carbon-neutral economy, which will benefit everyone.
2- The plight of the German car giants
The problems facing German automakers have reverberated throughout the rest of Europe.
Germany has a vast industry that includes major brands, such as the Volkswagen Group and BMW.
Car manufacturers in Germany are suffering from weak sales, with high costs of switching to electric driving systems, according to a report by the German News Agency.
Mercedes was recently forced to lower its profit expectations for the current year, due to faltering sales in China.
BMW had previously lowered its sales and profit expectations for this year.
The Volkswagen Group is facing forced layoffs and factory closures, for the first time in three decades. The giant company may eliminate 30,000 jobs out of 300,000 in Germany.
European countries that cooperate with Volkswagen are monitoring the possibility of job cuts in Germany.
For example, the automobile industry in Slovenia, which accounts for about 10% of the country’s GDP, is export-oriented, and Germany is one of its most important markets.
In Portugal, the AutoEuropa factory, affiliated with Volkswagen, in Palmilla, south of Lisbon, continues its broad economic impact in the country, contributing 1.3% to the gross domestic product during 2023, and it also constitutes the main foreign investment carried out by the country.
In Germany, a number of factors have been identified that explain the reasons for the difficulties faced by the automobile industry in the country, as follows:
- Electric mobility stagnates
The removal of subsidies at the federal level in Germany last year led to a collapse in demand for battery-powered electric cars, at a time when factories were not being used to operate at their full capacity.
There is also a risk of higher fines due to stricter EU “fleet targets” for carbon emissions from 2025.
Economic uncertainty also causes weakness in business in general.
During last August, new car registrations in Germany declined by 28%, compared to the same month last year, compared to a decline in the European Union as a whole by 18%.
The German Automotive Industry Association expects only 2.8 million new electric vehicles to be registered over the entire year, about a quarter less than in 2019 before the crisis. Experts do not expect sustainable growth in Europe.
- Dependence on China
Business abroad is faltering, and the German auto industry’s widespread dependence on China – where it does nearly a third of its business – has proven devastating, according to the German news agency.
Over many years, China’s automobile market has ensured rapid growth and high profits. But the current faltering demand for German car models has dealt a severe blow to Volkswagen and other companies.
- High costs
German manufacturers suffer from a significant increase in energy and labor costs, and producing lower-cost car models is unprofitable in Germany, according to expert Schoop.
- Ambitious revenue targets
Part of the problem lies in senior management’s expectations regarding profit margin, says Schoop. The pressures to reduce expenditures have increased accordingly.
Manufacturers are still making significant profits, and are by no means on the verge of bankruptcy, according to Schoop.
3- Tariffs on Chinese cars
European manufacturers – according to the agency’s report – face competition from cheaper Chinese electric cars, as Brussels accuses Beijing of providing unfair support to local manufacturers.
In order for European electric car manufacturers not to be further undermined by Chinese car manufacturers, the European Commission presented a plan to impose additional fees on electric cars imported from China, in addition to the current fees.
This issue sparked a division among the member states of the European Union, and 10 of the 27 member states of the European Union voted – yesterday, Friday – in favor of increasing customs duties on electric cars from China by 35.3%, and 10% on the current duties.
Five countries, representing about 23% of the bloc’s total population, voted against the additional fees, while 12 countries abstained from voting.
Through the new fees, the European Union hopes to provide protection for the bloc’s auto industry, which provides job opportunities for about 14 million of its residents.
The new tariffs were criticized by Germany and then Spain, as the two countries fear that they may lead to a trade war with China, while other member states support the tariffs, including France and Italy.
It is still up to the Commission to decide to start imposing the new fees that would spark a new wave of trade conflict between the European Union and China, starting from the first of next November.
This plan could be canceled if the Commission is able to reach a negotiated agreement with China.
“The European Union and China continue to work hard to search for an alternative solution,” the Commission said in a statement following yesterday’s vote.
Following yesterday’s vote, German Finance Minister Christian Lindner warned of the escalation of trade disputes, stressing in a statement published on the X platform, “We need a negotiated solution.”
In general, the tariffs are opposed by German car manufacturers, which include brands such as Volkswagen, BMW and Mercedes, as they invest heavily in the Chinese market and sell a large part of their production in this market.
