Industry insiders say the EU has to go on the offensive to save its carmakers in the transition to electric vehicles.
This article is the product of a POLITICO Working Group presented by BMW Group .
BRUSSELS — It’s time for Europe to wake up from its long slumber and go on the offensive before it loses what is left of its automotive sector.
Once seen as a world leader in automotive engineering and brand stature, the European Union’s carmakers are in crisis as they struggle to transition to electric vehicles and compete with Chinese rivals that have gained the upper hand in EV technology.
“We need to see a change in mindset to be more offensive and innovative rather than reactionary and defensive,” said Frank Niederländer, BMW’s vice president of government affairs Europe, who was speaking at a working group organized by POLITICO on making Europe’s automotive sector competitive.
Innovation requires being open to failure and “we’re not good at that in Europe,” said Julia Poliscanova, vehicle director at green nongovernmental organization Transport & Environment, pointing to the struggles at battery company Northvolt.
The Swedish firm was seen as the bloc’s standard-bearer for providing an alternative to Asian batteries but recently filed for Chapter 11 bankruptcy in the United States after failing to secure private funding or public aid from the EU.
Its financial woes began when automakers like BMW pulled out of contracts, citing a slowdown in EV sales. That prompted a scramble for cash and customers that is akin to the scenarios playing out at automotive suppliers across the bloc that are now laying off thousands of workers.
No company is perfect, Poliscanova said, referring to Northvolt’s management and financial troubles, but the failure of the EU and national governments to step in to keep the startup afloat “is akin to watching the Titanic and doing nothing. It’s a real tragedy.”
More risks to partnering up
As European automakers cede more market share to Chinese competitors, policymakers are warming to the idea of Europe reverse engineering the joint venture model pioneered by China in the 1980s to get technological know-how.
Under the Chinese scheme, foreign companies like Volkswagen could enter the market so long as they set up a partnership with a domestic firm that would have a controlling share of the joint venture.
Now the idea is that European firms would set up joint ventures with Chinese companies in Europe, which would allow them to learn how to build better batteries and electric cars.
The world’s geopolitical chessboard, however, makes such deals complicated, Niederländer said.
The Biden administration has proposed a ban on Chinese software in vehicles, for example, and the reelection of Donald Trump makes exporting vehicles to the U.S. more problematic.
Automakers have to assess “what partners will be accepted in the market,” the BMW executive said.
With the EU also pondering whether to follow in America’s footsteps in erecting more safeguards on data, such partnerships could become even more cumbersome.
Security risks
But the risk of doing nothing is growing.
The automotive industry employs nearly 14 million people across Europe, but it’s shedding jobs — which is causing political turmoil in countries like Germany.
Political risks posed by Russia’s invasion of Ukraine and China’s desire to bring Taiwan back into the fold also heighten the need for Europe to maintain a strong and independent industrial sector.
The continent needs to be “ready for the worst,” said French MEP Thomas Pellerin-Carlin from the Socialists and Democrats.
That means ensuring that the EU has its own supply chain of critical components and manufacturing.
It also includes rethinking the bloc’s trade policy and “macroeconomic thinking around the fact that we now live in a world of bullies,” Pellerin-Carlin said, particularly given Trump’s reentry onto the global stage and his “America First” views.
A shift in focus
Europe’s economic security and the future of its automotive sector depends on coming out of “retirement mode,” Niederländer said.
He hoped the pressure from Chinese competitors and the slew of investments in the U.S. thanks to the Inflation Reduction Act will be enough for the bloc to “create a different dynamic.”
The IRA, with a potential size of over $1 trillion, has provoked jealousy and awe in Europe since its passing in 2022 kicked off electric vehicle manufacturing and battery investments in the U.S.
The EU would benefit from “taking inspiration” from the legislation, the industry insiders said, and creating business opportunities that would support the European Commission’s Green Deal target of making the continent carbon neutral while not destroying its industrial base.
Instead of focusing on adding more regulation, lawmakers need to turn their attention to the implementation of existing targets if the continent is to pull the automotive sector out of its downward spiral.
“Our weakest spot is investment,” said Poliscanova. “If we don’t have a more European and commercially focused approach, it won’t happen.”
This article is the product of a POLITICO Working Group presented by BMW Group and was produced with full editorial independence by POLITICO reporters and editors. Learn more about editorial content presented by outside advertisers.