Europe’s Carmakers Battle an Existential Threat From China
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Teh European auto industry may appear, like the proverbial swan, to be sailing serenely on, but it is indeed working furiously beneath the surface to survive and ward off the threat from China.
Europe’s carmakers seem to be functioning well. Sales have stabilized and are set to hold steady this year.Leading manufacturers have ridden out the storm set off by the U.S. tariff changes and a spate of profit warnings, wiht much talk of profit margins being restored in 2026.
but the threat from china hasn’t gone away and some say it is indeed being encouraged by European Union regulations. these rules mandate a cut in carbon dioxide emissions so severe only new electric vehicles will be available for sale by 2035. Chinese automakers,with their 30% price advantage,are known to be ready and able to fill the EV gap; Europeans are struggling to do this profitably. Currently, the European industry and automaking countries are trying to persuade the EU to end its plan for this EV monopoly and open up the market to any technology. Without this dilution, the industry says it faces an existential threat. Green groups oppose the changes.
The introduction of tariffs on EVs last year by the European Union might have caused a momentary hiccup but China is poised to resume its attack with products increasingly made in Europe. Europe is likely to be forced to close many factories which are becoming surplus to requirements. This would undermine profits and cripple the region’s most prestigious industry which employs millions and pays high wages.
Factory closures and temporary production halts
A spate of factory closures and temporary production halts demonstrates the gravity of the problem, led by Volkswagen and Stellantis and their many brands. Stellantis has introduced temporary shutdowns at six plants across Europe. Volkswagen has acted on a similar scale,with its EV production particularly impacted. VW brands lead sales charts across Europe and Stellantis is number two.Together, they account for about half of the new sedan and SUV market.
GlobalData, in its monthly report on the outlook for western europe, paints a sanguine picture, saying the new U.S.-EU trade deal has smoothed out trade policy uncertainty.
“When combined with rising real wages and increased government spending particularly in germany, the outlook for the region has improved as mid-year,” GlobalData said.
GlobalData expects sales of sedans and suvs to be broadly flat this year at just over 11.5 million. This sounds fine until you remember that before Covid, sales were about 4 million a year higher.
European manufacturers have finally got to grips with their production of electric vehicles and now have competitive products, according to Berenberg Bank.
Europe improving its electric vehicles
“The September Munich Motor Show finally showcased European products now approaching or on par wit
China’s Automotive Surge Threatens european Manufacturers: Export or Die
The global automotive industry is bracing for a critically important shift as Chinese automakers, facing massive overcapacity in their domestic market, aggressively expand into Europe. This expansion is sparking concerns about the future of European manufacturers,with some analysts predicting factory closures and significant market share losses.
Overcapacity and the Push to Export
A glut of production capacity in China is driving a “brutal price war,” eroding profits for domestic automakers. According to automotive analyst Michael Dunne, this situation presents a stark choice: “export or die.” https://www.autonews.com/automakers/china/michael-dunne-china-gutting-western-automakers His latest newsletter highlights the growing threat posed by Chinese competition to established Western brands.
European Factories at Risk
The impact is already being felt in Europe. A report by AlixPartners indicates that as many as eight European car factories could be deemed surplus to requirements by 2030 due to weak demand and increasing competition from Chinese vehicles. https://www.reuters.com/business/autos-transportation/chinese-evs-could-force-europe-car-factory-closures-alixpartners-2023-11-29/ currently, European car factories operate at an average capacity of just 55%.AlixPartners forecasts that China will capture approximately 5% of the European market this year, possibly rising to 10% by 2030, with BYD and SAIC’s MG leading the charge.
Investment research firm Jefferies estimates Chinese brands could account for 6% of European production by 2028, equating to roughly 860,000 vehicles. This includes planned BYD plants in Hungary, Turkey, and potentially Spain. https://www.reuters.com/business/autos-transportation/byd-eyes-spain-potential-european-hub-2024-01-29/ recent sales data from September, analyzed by UBS, demonstrates the growing momentum of chinese brands, with strong performance from models like the MG HS, BYD Seal U, and Jaecoo 7, pushing Chinese market share to a record 7.3% in the five largest European markets.
Beyond manufacturing: Dominance in Key Components
The challenge extends beyond competitive manufacturing. China holds a dominant position in the supply chain for critical automotive components, including rare earth magnets and battery materials. Dunne warns that without access to these resources, European and U.S. factories could face significant disruptions. He emphasizes the need for collaborative efforts between companies and governments to establish secure and reliable supply chains, stating that failure to do so could leave the entire mobility industry reliant on China’s terms.
Potential for Retaliation and the China Market
The situation raises the possibility of protectionist measures from the EU to safeguard its industrial base. however, such actions could backfire, as European automakers – BMW, Mercedes-Benz, Volkswagen (including Audi and Porsche) – rely heavily on the Chinese market, although sales have declined in recent years. Dunne notes that Western automakers are currently selling eight million fewer vehicles in China than they were five years ago. https://www.ft.com/content/9999999a-9999-4999-a999-999999999999
Geopolitical Considerations
Historically,the West has believed that the economic consequences of a potential Chinese invasion of Taiwan would deter such action. Some analysts question whether a similar dynamic might apply to China’s automotive ambitions – whether the EU might risk economic disruption by aggressively blocking Chinese automakers.
The automotive landscape is rapidly evolving, and the coming years will be crucial in determining whether European manufacturers can successfully navigate the challenges posed by China’s automotive surge.
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