EU revs up to fight slump as high prices and Chinese competition throttle auto industry

BRUSSELS (CN) — With EU carmakers sounding the alarm, the European Commission convened key industry players Thursday for a first-ever “strategic dialogue” on reviving the bloc’s troubled automotive sector.

Manufacturers say high costs, emissions fines and increased Chinese competition are causing job losses, factory closures and a slump in overall demand.

The sector employs 13 million people across Europe and accounts for about 7% of the bloc’s GDP. However, possible job cuts — firms announced 88,000 job reductions in 2024 — and an aging workforce are spooking the sector.

“The European automotive industry is at a pivotal moment, and we acknowledge the challenges it faces. That is why we are acting swiftly to address them,” European Commission President Ursula von der Leyen said in a statement after the talks on Thursday.

“The fundamental question we need to answer together is what we still miss to unleash the innovative power of our companies and ensure a robust and sustainable automotive sector,” she added.

The talks come a day after the EU presented a landmark blueprint on how to ramp up the bloc’s overall competitiveness and avoid falling behind global competitors in the United States and China.

Wednesday’s new plans are to overhaul the bloc’s economic model away from overregulation and move toward a more business-friendly environment by slashing red tape and supporting homegrown innovation.

Representatives of 22 companies, including Europe’s largest carmaker Volkswagen, BMW, Mercedes, Renault, Volvo and others, attended the talks, chaired by von der Leyen, according to a readout by the European Commission.

In a briefing note for the talks, the commission said it “recognizes the urgency and severity of the situation, and the need for decisive action to protect European prosperity while at the same time achieving climate goals and other societal objectives.”

Thursday’s talks between carmakers, suppliers, policymakers and civil society groups are expected to result in an action plan that will be presented on March 5.

Von der Leyen said the results of the dialogue would “ chart a clear course to ensure our industry can thrive in Europe and compete successfully on a global stage*."*

Decarbonization push

One of the key sticking points for industry representatives remains the shift to electric vehicles, with carmakers calling for “flexibility” on the steep emission fines they could face in 2025.

As part of its Green Deal, the commission introduced a set of emission-reduction targets over the last few years that it said should lead to the phase-out of fossil fuel-burning cars by 2035.

In 2025, European carmakers have to lower the average CO2 emitted by all newly sold vehicles by 15% from 2021 levels or pay a penalty.

The measure is meant to encourage companies to increase the share of electric vehicles, hybrids and small vehicles they manufacture for their fleets and get rid of diesel models like SUVs.

Car manufacturers, however, have cautioned that they have had trouble enticing European consumers to switch to EVs, which still come with higher upfront costs and lack an established used-vehicle market to acquire cheaper models.

In an open letter to the European Commission, Ola Källenius, president of the European Automobile Manufacturers’ Association and CEO of Mercedes-Benz, said Europe would “need a realistic pathway to decarbonize the European automotive industry — one that is market driven, not penalty driven.”

“Penalizing immediately the industry financially is not a good idea, because the industry is in trouble and (…) has to restructure itself, which will cost a lot of money,” Patrick Koller, CEO of French parts producer Forvia, said in a statement ahead of the talks.

“When you look back, we have heavy industries which disappeared from Europe completely because of lack of competitiveness,” Koller added.

Von der Leyen on Wednesday seemed open to taking steps toward those demands.

She said targets to reduce CO2 emissions and fines for automakers that fail to meet them must be applied fairly to reflect investments companies have made.

“There needs to be fairness in the system, because some have invested already and are successful in fulfilling the goals — but also the amount of necessary flexibility and pragmatism that we need to solve this complex issue” should play a role, von der Leyen told reporters in Brussels.

Trade wars and tariffs

While EV sales slumped 1.3% in Europe last year, accounting for 13.6% of all sales, according to the European Automobile Manufacturers’ Association, the market share of Chinese electric cars in the EU skyrocketed to reach 14% in the second quarter of 2024.

The European Commission had imposed extra import tariffs on China-made electric vehicles of up to 35.3% after concluding Beijing’s state aid to its domestic companies was unfairly undercutting European car manufacturers.

However, the move was opposed by leading carmaker Germany and other EU members, and it is the object of a lawsuit by BMW, Tesla and several Chinese automakers.

Next to Chinese carmakers, the rate for Tesla under the EU tariff scheme was set at 7.8% in addition to the 10% already in place for EV imports from China, while BMW’s imports were hit with a 20.7% duty.

Many in the industry fear the tariff tit-for-tat could further escalate with China hitting other European sectors out of retaliation, and a potentially deepening rift between Brussels and the new U.S. administration under President Donald Trump.

Industry representatives argue the EU executive, which is responsible for the trade policy of member states and negotiates agreements on their behalf, should therefore ensure that trade relations with China and the United States continue despite the uncertainty of further tariffs and looming trade wars with both.

“It is understandable that the EU must protect its domestic market and its economy against players not following the WTO rules. But experience has also shown that potential trade wars have no winners. Protectionist measures are not necessarily the best solution,” Källenius said in his open letter to the commission.