After a couple of years of record profits in the automotive sector, carmakers are facing a turnaround marked by falling profits and falling registrations. The reason: a demand for electric vehicles that is not taking off in Europe, coupled with fierce competition from China.
The sector is facing an unprecedented challenge, which has led Europe to implement even a historic measure of tariffs on its vehicles. The question now is how to get out of this impasse without collapsing the local European industry.
Stagnant demand for electric vehicles in Europe
One of the biggest challenges for the European automotive industry is the slow growth in demand for electric vehicles (EVs). Despite Europe’s rush to regulate the end of combustion vehicles, the reality is that European consumers have not shown massive enthusiasm for EVs.
So much so that the electric vehicle fleet is 450,000 units below forecast, while the overall fleet has lost two million units since the pre-pandemic. The consumer is confused, does not know what type of vehicle to buy, and therefore delays car purchases in general.
This stagnation in demand is having a significant impact on the financial performance of companies, which had bet heavily on a transition to electrification as a long-term solution for sustainability and carbon reduction.
What factors are influencing this?
Firstly, the cost of EVs remains high compared to traditional internal combustion vehicles, on average between €5,000 and €18,000 more in Europe. Although prices have started to come down for several models, EVs remain a more expensive price option for the middle class, which traditionally drives vehicle sales. This is compounded by major consumer uncertainties about the management of certain high-value components, such as lithium batteries, when they reach the end of their useful life.
Also, the charging infrastructure in Europe is still under development, which raises doubts among potential buyers about the convenience and accessibility of charging, especially for those in rural areas. In Spain there are currently 32,422 charging points. If the current pace continues, this year’s forecast of 64,000 charging points, needed to meet Europe’s decarbonisation targets, will not be met.
In terms of sales figures, 27,077 electrified cars were sold in Spain in the first quarter of 2024, which represents only 9.7% of the annual target of 280,000. This is a far cry from the target, which should have already registered around 70,000 units in the first quarter. Spain is thus far from the climate targets of the ‘Fit for 55’. As a result, vehicle manufacturing and sales activity in Spain fell by 8.77%, leading to 52,800 fewer jobs in the second quarter of the year compared to the same period last year.
In European terms, in June 2024, electric registrations declined by 1% across the bloc. Despite significant growth in countries such as Belgium (+50.4%) and Italy (+117.4%), these gains could not offset double-digit declines in the other main markets: Germany (-18.1%), the Netherlands (-15%) and France (-10.3%). Overall, car sales in Europe reached 1,087,699 units. A number of cars registered which, compared to the same period of the previous year, represents a decline of 2.5%.
Fierce competition from China
This complex scenario is compounded by growing competition from Chinese manufacturers, which have entered the European market with more affordable and technologically advanced electric vehicles.
China, which has invested massively in EV production and the development of its own infrastructure, has gained a significant competitive advantage, allowing it to export vehicles at lower prices than its European competitors.
This imbalance between China and the EU is clearly visible in the trade balance. In 2023, imports into the EU 438,034 battery electric cars from China, worth 9.7 billion euros. In contrast, only 11,499 European battery electrics were exported to the Asian giant, 852.3 million. This means that the market share of Chinese cars in Europe has risen from 3% to more than 20% in the last three years.
This Chinese advance has prompted the EU to take drastic measures to protect its industry. Recently, a historic measure of tariffs on vehicles imported from China has been implemented. Thus, electric vehicles manufactured in China will have to pay tariffs ranging from 17.4% to 37.6% when they enter the EU, in addition to the existing 10%. This is the biggest trade defence measure the EU has adopted to date, but there are already voices criticising the start of a trade battle in other areas such as meat, without resolving the problem of electric vehicles in Europe, for which many are calling for a minimum of European components to be required in vehicles sold here.
The future of the industry: adaptation or decline?
The automotive sector in Europe is at a crossroads. Traditional manufacturers will need to adapt quickly to new market conditions if they are to survive and prosper. This will mean more investment in research and development to reduce the costs of electric vehicles and improve charging infrastructure, but the challenge is that many of the companies in the value chain are SMEs that cannot afford such large investments.
It will also be crucial to find ways to increase demand, either through stronger incentives for consumers or through campaigns that clarify the long-term benefits of EVs.
European companies will also have to compete not only on price, but also on innovation and quality to counter the Chinese offensive. The introduction of tariffs may offer a temporary respite, but it will not be enough to ensure the long-term sustainability of the sector if it is not accompanied by an effort to strengthen the competitiveness of European industry.