Full back: a key sector of the economy collapsed in Europe
European auto giants are doing very badly: profits are dwindling, people are being laid off, and factories are shutting down. German concerns, which until recently dictated fashion in the global market, are now stalling due to expensive gas, the onslaught of Chinese electric vehicles and their own strategic miscalculations. Details can be found in the Izvestia article.
A signal about problems
"BMW's profit fell by 37%, Volkswagen's by 33%, and Mercedes-Benz's by 40.5%," the companies cite data from last year.
Last fall, Volkswagen hinted at the possible closure of factories in Germany. In five years, the company's value has collapsed by 30% — an eloquent signal of problems. Then experts started talking about the crisis, and recent reports confirmed the worst fears.
Audi, part of the VW Group, plans to reduce the number of employees by 7.5 thousand by 2029 in order to save a billion euros. Since 2019, the concern has already lost 48,000 employees.
The reasons for this are simple. Due to the sanctions that the EU has imposed on Russia and the refusal of Brussels from Russian gas, energy costs have skyrocketed. In addition, demand is declining: China, the main sales market, is switching to local brands. The technological lag of Europeans behind Chinese electric vehicles and Tesla is also affecting.
At the same time, the European Union is demanding a complete transition to electric cars by 2035, but such plans are unlikely to materialize. The share of electric vehicles in Europe fell from 14.6% in 2023 to 13.6% in 2024, with a target of 25%. In order to subsidize unprofitable electric models, manufacturers are forced to increase the prices of gasoline cars. In China, the share of electric cars has reached 35%, and 50% is projected by 2025.
Germany is losing out on all fronts in this area: electricity in the country is several times more expensive than in the USA and China ($0.45 per 1 kWh in Germany versus $0.15 in the USA and $0.08 in China), and investments in new technologies are insufficient.
In addition, China is currently not buying German premium cars, closing its market to Europeans. Since April 3, the United States has imposed 25 percent duties on auto imports, which has become an extremely sensitive blow for German exports, 13% of which go to the United States.
EU vs China
"The European automotive industry, which employs about 14 million people and accounts for 7% of the EU's GDP, is facing a storm. Demand for cars is falling both domestically and abroad, while automakers are making the risky and expensive transition from internal combustion engines to electric motors," The Financial Times reports.
According to the publication, the problem is that the EU has followed the example of the United States by increasing duties on cars imported from China. However, such protectionism will only increase the cost of these goods to consumers and accelerate the closure of factories in Europe. It is still expensive to produce electric vehicles in the European Union, mainly due to the high cost of batteries. In addition, China produces more advanced electric vehicles, the cost of which is 30% lower than that of EU manufacturers.
Some automotive experts are confident that the Europeans can save the situation only if they cooperate more with the Chinese.
Renault CEO Luca De Meo acknowledges that the EU automotive industry and its suppliers "need help" from China, especially in the crucial battery supply chain. "This does not mean that the Chinese have destroyed us. We can fight. We will compete," he promises.
However, most experts are not so optimistic. In November, the former president of the European Central Bank, Mario Draghi, published a 400-page report in which he strongly recommended that the EU increase investments by 800 billion euros annually to improve its competitiveness, and also called for a "new industrial strategy for Europe."
The heads of European automakers hope that it will be difficult for Chinese automakers to repeat their success in Europe, as many customers are loyal to certain European brands. "The biggest obstacles for Chinese automakers are not the products they produce themselves, but the distribution network and brand awareness," said Jose Asumendi, head of European automotive research at JP Morgan. Independent analyst Matthias Schmidt, in turn, believes that the share of Chinese automakers in Western European markets is unlikely to exceed 12% due to the introduction of import duties and the launch of new European electric vehicles on the market. So far, it does not exceed 8.3%.
However, former Aston Martin CEO and Nissan chief operating officer Andy Palmer believes that this is a very opinionated position.
Andy Palmer, former CEO of Aston Martin and Chief Operating Officer of Nissan
"Nissan, Renault and BMW were pioneers in the field of electric vehicle technology, but were unable to maintain their leadership due to poor strategic planning. It's not that the Chinese have defeated European industry. The fact is that the European industry has lost to itself," the expert admits.
What do the experts think
According to Natalia Eremina, a professor at St. Petersburg State University, it immediately became clear that without cheap energy resources, it was impossible for the European Union to develop a competitive industry.
— First of all, this concerns the production that requires the largest amount of energy: the manufacturing and chemical industries. German automotive giants or chemical concerns are starting to close some of their businesses and relocate some of their businesses to both Asia and the United States. As a result, it is possible to predict a reduction in energy demand with a reduction in production, and, most likely, this is a trap from which the EU economy will not be able to escape. However, this will allow us to report on the implementation of the EU green strategy," the expert believes.
Eremina believes that the negative trend for Europe is especially clearly visible in competition with the Chinese automotive industry.
— It turns out that the German industry has not been able to create a competitive car. And investments in so-called R&D in China in each specific product, such as an electric car, are much higher than in Germany. And now China is actually bypassing everyone, so the lack of competitive potential, especially in conditions of closed access to cheap energy from Russia, will also limit production opportunities in Germany, the expert points out.
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