Is Europe’s car industry at a crossroads? AI transcript and summary - episode of podcast The Inquiry
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Episode: Is Europe’s car industry at a crossroads?
Author: BBC World Service
Duration: 00:22:58
Episode Shownotes
The car industry across the European Union employs over thirteen million people, both directly and indirectly, that’s around six percent of the bloc’s workforce. But in recent years, Europe’s manufacturers have been struggling to cope with issues like economic downturns, clean energy requirements and the digital revolution. Some of the
oldest, biggest carmakers are considering plant closures and job cuts in order to try and stay afloat. They are also facing fierce competition in the electric vehicle market from China, who have taken a lead in producing cars that are much more competitively priced and equipped with much more sophisticated technology. China’s own economy has been flagging, so the EU provides it with its largest overseas market in terms of the electric car industry. But now, in a bid to protect their own car industry, the EU has introduced tariffs on electric cars made in China. These tariffs are set to rise from ten percent up to forty five percent for the next five years. Beijing has condemned them as protectionist and there are concerns that it could spark a trade war between Brussels and Beijing. So, on this week’s Inquiry, we’re asking ‘Is Europe’s car industry at a crossroads?’ Contributors: Carsten Brzeski, Global Head of Macro Research, ING, Germany Tu Le, Founder and Managing Director, Sino Auto Insights, United States of America Beatrix Keim, Director, CAR Centre for Automotive Research, Germany Stefan Deix, Director, EUCAR, European Council for Automotive R&D, Belgium Presenter: Tanya Beckett Producer: Jill Collins Researcher: Matt Toulson Editor: Tara McDermott Technical Producer: Matthew Dempsey Production Co-ordinator: Liam Morrey Image Credit: Westend61 via Getty Images
Full Transcript
00:00:00 Speaker_00
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00:00:27 Speaker_07
Welcome to The Inquiry with me, Tanya Beckett. One question, four expert witnesses, and an answer.
00:00:38 Speaker_07
It was an announcement that held few surprises for those who've been watching the slow unravelling of Europe's car industry, but a huge blow nonetheless for the many thousands of workers in the sector.
00:00:52 Speaker_07
Europe's biggest carmaker, Volkswagen, said it was looking at closing at least three of its plants in Germany, with the loss of thousands of jobs and 10 per cent pay cuts for remaining workers.
00:01:04 Speaker_07
The first time it had shut down a factory on domestic soil in its nearly 90-year history. Only a few weeks passed before another sign emerged that automakers had pretty much entered a crisis.
00:01:18 Speaker_07
Stellantis, the owner of Vauxhall, Peugeot and Citroën, announced it is to close its 120-year-old plant in the UK in April. Directly and indirectly, the European Union's automotive industry employs over 13 million people.
00:01:35 Speaker_07
6% of the bloc's workforce and accounts for around 7% of the region's economy. But the sector has been beset by problems, only one of which is fierce competition from China.
00:01:49 Speaker_07
This week on The Enquiry, we're asking, is Europe's car industry at a crossroads?
00:02:01 Speaker_06
Part one, the manufacturing landscape.
00:02:07 Speaker_09
Karsten Zelsky, Global Head of Macro Research at ING.
00:02:13 Speaker_07
Europe's car-making struggles began nearly a decade ago, when the region's largest auto manufacturer became embroiled in a scandal over vehicle emissions. The debacle cost Volkswagen over $30 billion in fines and compensation.
00:02:30 Speaker_07
It also cast a long shadow over the industry. Just a few years later, the COVID-19 pandemic and start of the war in Ukraine were followed by a rise in the price of oil and gas, prompting a cost-of-living crisis.
00:02:46 Speaker_07
This meant that automakers whose manufacturing processes are highly energy-intensive were now suddenly facing a double whammy.
00:02:55 Speaker_07
On the one hand, they were grappling with higher energy bills, and on the other, cash-strapped consumers who were not ready to pay more for new cars.
00:03:04 Speaker_09
We're currently in a situation in which almost, you could argue, the entire economic model of the EU, of Europe, is under pressure. We are in the midst of an energy transition. We still have an ongoing war in Ukraine at the east border.
00:03:22 Speaker_09
There is so much geopolitical tension, so that this model in which strong industries provided economic prosperity in European countries is clearly under pressure.
00:03:35 Speaker_07
But as if higher production costs and a reticent consumer weren't enough to contend with, yet another shift was also afoot. And that is the transition from fossil fuels to clean energy.
00:03:48 Speaker_07
Between 2020 and 2023, the share of battery-powered cars in the EU almost tripled to a sixth of all new purchases. The trouble was that more and more of those purchases were not of vehicles made in Europe, but China.
00:04:05 Speaker_09
The European side to the story is underestimating the speed by which the electric vehicle transition is taking place. Always hoping that this would somehow not happen and that they could just stick to their old models.
00:04:21 Speaker_09
So a bit of complacency, underestimating a clear global trend.
00:04:26 Speaker_07
There was also a rather straightforward underlying reality. Chinese cars were a much cheaper option for the consumer. From pretty much a standing start a few years before, by 2023 Chinese imports accounted for a fifth of all sales of electric cars.
00:04:44 Speaker_07
European manufacturers had simply been strategically outmanoeuvred.
00:04:49 Speaker_09
China, pre-pandemic, really started to invest in manufacturing, in high-tech goods. They wanted to become a better Germany to some extent.
00:05:00 Speaker_09
And they invested a lot, especially in electric cars, because they knew with the old cars, diesel, gasoline engines, they were not able to really compete with European car manufacturers. But with the electric cars, everyone started from scratch.
00:05:15 Speaker_09
And so there has been enormous subsidies in the Chinese car manufacturing industry. There also is quite some know-how in China now. And this is why the Chinese cars, especially electric cars, have become so competitive.
00:05:31 Speaker_07
Couple this with a weakened consumer market, and the very cornerstone of Europe's manufacturing found itself in an exceptionally tight spot.
00:05:41 Speaker_09
Now the situation is extremely urgent, extremely pressing. A crucial industry for Europe is clearly now looking into a very uncertain future.
00:05:52 Speaker_09
Think of the fact that the automotive industry is very often not in big cities, but in the middle of nowhere, where over the decades entire infrastructures have been built, entire cities started to grow.
00:06:05 Speaker_09
And if you add all these things together, you easily, at the European level, get to a size of 4-5% of the European economy. In a country like Germany, it's probably rather 6-7% of the entire economy. And then there's even more to that.
00:06:21 Speaker_09
The automotive industry had been an extremely important source of research and development, of patent, of innovation.
00:06:29 Speaker_09
When you look at all of this, it is extremely hard to overestimate the impact and the effect that the automotive industry has on the entire European economy.
00:06:43 Speaker_07
After three years of witnessing change at breathtaking speed in 2023, the European Union started an investigation into whether Chinese carmakers were operating on a fair and level playing field to their European counterparts.
00:06:59 Speaker_07
It took a year for the EU to conclude they were not. So in October 2024, Europe imposed new tariffs on battery electric passenger cars imported from China for at least five years. Pricing-wise, cars were now even.
00:07:22 Speaker_07
But if Europe was able to influence consumer choice in its own backyard, it had far less control over buyers in one of its key export markets. Time for our next expert witness.
00:07:36 Speaker_06
Part two, the China story.
00:07:45 Speaker_07
China's consumers have long had a taste for European style when it comes to cars, particularly since the country's middle class began to grow at the end of last century.
00:07:58 Speaker_07
Tu Li is the founder and managing director of the innovation and management consulting firm Sino Auto Insights.
00:08:05 Speaker_01
Volkswagen was the first foreign brand that entered the market in the late 80s and General Motors followed suit in 1998 and many of the legacy automakers followed suit after that.
00:08:18 Speaker_01
Fast forward to 2009, the China market became the largest passenger vehicle market in the world.
00:08:24 Speaker_01
It surpassed the United States and through the last few years, the legacy automakers collectively have had a strong position in the China market, more than 50-60% of total share.
00:08:41 Speaker_07
From controlling over half of the market, the grip of European carmakers in China has, in recent years, been markedly on the slide. And the roots of that shift can be found, at least in part, in China's industrial plan put in place over 10 years ago.
00:09:01 Speaker_07
In 2009, the Chinese government launched its new electric vehicle strategy, and over the next decade or so, it poured over $29 billion into subsidies and tax breaks for electric cars.
00:09:14 Speaker_07
Chinese car firms started to spring up, both private and state-owned. Nio, Xpeng and Li Auto are a few examples. Initially, the take-up from Chinese consumers was slow, but then in 2018 came inspiration from abroad.
00:09:30 Speaker_07
American firm Tesla set up a factory in Shanghai and helped local suppliers develop their technology.
00:09:38 Speaker_01
Tesla was able to build their factory in less than a year. And I really point to Tesla being a huge catalyst for bringing excitement, eyeballs, interest to the EV sector.
00:09:50 Speaker_01
And then also a bunch of ambitious Chinese entrepreneurs that didn't have any automotive experience entering into the EV space.
00:10:00 Speaker_07
Then, with the onset of the pandemic, a new, younger type of buyer came to the fore, with markedly different ideas of what a car should represent. Ideas that were more swiftly understood not by European manufacturers, but ones much closer to home.
00:10:16 Speaker_01
The Chinese consumer, the ones born after 1990, are considered digital natives. And the two priorities they have when car buying, the first is safety and the second is connectivity.
00:10:32 Speaker_01
And they want to make their digital life part of their vehicle experience. And that's what the Chinese automakers are really, really good at, is creating a seamless experience for when you're outside the vehicle and you get into the vehicle.
00:10:51 Speaker_07
Suddenly the idea of what a car should be shifted from how it looked to what activities were on offer when you were in it.
00:11:00 Speaker_01
If you're a digital native, you've grown up with WeChat, you've grown up with Alibaba and these really, really established companies. And so their expectation on a passenger vehicle is the same.
00:11:12 Speaker_01
There have been brands in China, including Tesla, that have sold microphones along with their electric vehicles because some people want to sing karaoke in their cars. Tesla, the only market that they offered a microphone was China.
00:11:27 Speaker_01
And within a week or two, the microphone sold out. So there's demand for that stuff.
00:11:34 Speaker_07
Europe's carmakers, who had until that point commanded a strong audience, were now firmly in the backseat.
00:11:43 Speaker_07
So that really means that the European manufacturers, in many cases, were wrong-footed by what they found when they tried to attract Chinese consumers other than those who were looking for a European style experience.
00:11:57 Speaker_01
The difference is the Chinese EV makers are able to adjust and innovate very quickly to bring out new products, new features, whereas the European legacies, the American legacies,
00:12:11 Speaker_01
All the foreign legacies, for that matter, have just been caught flat footed. They have a lot of operational costs that the Chinese EV companies don't. They don't understand the Chinese consumer as well as the Chinese EV makers.
00:12:24 Speaker_01
They're just not as good at software and software hardware integration that creates these connected features that the Chinese consumers want. And on top of that, they can't sell at the price that the Chinese EV makers can.
00:12:38 Speaker_07
In short, younger consumers were fast moving away from the technology that European car makers knew so much about. And the speed of the shift towards vehicles that were at least in part powered by batteries was breathtaking.
00:12:54 Speaker_07
So from controlling half of the market, the European carmaker's share of the total pie began, rather suddenly, to shrink. And to make matters worse, things were scarcely looking better at home. Time for our next expert witness.
00:13:14 Speaker_05
Available now on the documentary from the BBC World Service.
00:13:19 Speaker_03
A year ago, the libertarian Javier Mele became president of Argentina. Wielding a chainsaw, he promised to slash government spending and to create the world's freest economy. I'm Charlotte Pritchard.
00:13:30 Speaker_03
Join me to find out how Mele is changing the lives of Argentines.
00:13:35 Speaker_05
Listen now by searching for the documentary wherever you get your BBC podcasts.
00:13:46 Speaker_06
Part three, the rough ride for Germany.
00:13:52 Speaker_04
Of course, culturally, as the car was pretty much invented in Germany, we are around with it already over 100 years. I think we're coming close to 130 years. And everybody loves his car, everybody needs a car. It is a very emotional product.
00:14:10 Speaker_04
So it is a very, very important industry for us.
00:14:16 Speaker_07
Producing around 4 million vehicles per year, Germany is not only the largest automobile manufacturer in Europe, it's also the country with the most sales.
00:14:30 Speaker_04
My name is Beatrix Keim. I'm from Germany and I'm working for CAR, Centre Automotive Research.
00:14:39 Speaker_07
As we have said, European consumers have been under significant pressure of late for the stagnating economy and high cost of living. German consumers are very much caught in that story.
00:14:51 Speaker_07
This is having a significant impact on their desire to buy new cars. In fact, in the past year alone, sales have slumped by about a quarter. And the drop has been over double that for electric vehicles.
00:15:06 Speaker_07
This can be traced back to when the German government abruptly ended its electric car subsidy programme at the end of 2023 due to worries over the level of government debt.
00:15:18 Speaker_04
Last year, mid-December, there was a sudden stop to the environmental premium, which was somewhere between 3,500 to 6,500 euro per car.
00:15:30 Speaker_04
If you bought a low emission vehicle, an electric vehicle or a plug-in hybrid or even sometimes a fuel cell vehicle, that was put to a stop very suddenly, really literally overnight.
00:15:41 Speaker_04
This because of a court ruling against the use of a certain amount of budget for climate projects. So there was then a gap in the budget and that put then everything to a halt.
00:15:56 Speaker_07
All this has left German car makers with very little room to manoeuvre when it comes to pushing back against cheaper competition.
00:16:14 Speaker_04
I believe, are on the top on a global level on the costing side. So if there would be, for example, subsidies or a support on lower energy costs for the manufacturing industry, that would be very helpful. But so far, this is not on the horizon.
00:16:32 Speaker_07
The worry now is that Germany doesn't currently have the skills to prepare for the green car revolution. And if things weren't complicated enough, in the summer of 2023, Germany announced its so-called de-risking strategy.
00:17:12 Speaker_07
In the face of deteriorating relations between Beijing and the West, Berlin said it would move to supply chains and markets away from China to insulate itself from political shocks.
00:17:26 Speaker_07
So there is this tension then between the geopolitical landscape and the German car industry and its prosperity.
00:17:34 Speaker_04
The industries are so not combined, but they are working together. And it is that China needs the foreigners, let's say here the Germans, as much as the Germans or the Europeans need the Chinese.
00:17:51 Speaker_07
Time for our final expert witness. Part 4, Europe's road ahead. The European Green Deal was launched by the European Commission President Ursula von der Leyen in December 2019. One of the targets is to reduce carbon emissions by 55% by 2030.
00:18:17 Speaker_07
And to help achieve this, there will be a ban on the sale of new petrol and diesel cars from 2035. The problem is that Europe's car industry, and for that matter its consumers, are not ready to take up the challenge.
00:18:36 Speaker_07
Our fourth expert witness is Stefan Dykes. He's the director of EUCAR, the research association of the automotive manufacturers in Europe.
00:18:45 Speaker_08
The right question is not whether the EU remains with the 2035 targets. The right question is are we doing everything we can to ensure that the users and we as a society are able to move towards these targets.
00:19:01 Speaker_08
So what we need to do is we need to consider the user, the customer in this equation. What are the main reasons for buyers to turn towards electric vehicles and what are the reasons not to do so?
00:19:14 Speaker_08
So the charging infrastructure availability, the affordability or the energy cost at public charging stations. All of these matter.
00:19:23 Speaker_07
Charging stations are indeed a problem. Put simply, there are not enough of them. It takes far less time to fill a tank with fuel than recharge a battery.
00:19:33 Speaker_07
And yet there is no real-time information on whether there are queues at any particular charging station. Which brings us neatly to the next problem.
00:19:44 Speaker_07
Whilst China is the world's leading producer of batteries, European manufacturers have trouble even getting access to the right materials to make them.
00:19:53 Speaker_08
Producing and manufacturing batteries at scale is not an easy task. We need to increase our knowledge of how we can manufacture these new batteries at an industrial scale.
00:20:03 Speaker_08
Certainly, this aspect is at the end determining whether the market can ramp up the technology and users will be able to afford them.
00:20:13 Speaker_07
The point was forced home by the collapse of Swedish battery firm Northvolt in November, in which a handful of vehicle makers were invested.
00:20:22 Speaker_07
But, says our final expert witness, there are other ways that the European car industry can be made more sustainable. This is what he suggests.
00:20:31 Speaker_08
We see the vehicle as part of the circular economy.
00:20:34 Speaker_08
Reducing and minimizing waste at the end of life, recycling, reusing, remanufacturing, repurposing materials and components for sustainable mobility requires standards, requires an understanding of how the sector can move forward towards circular economy.
00:20:53 Speaker_07
Getting this right is not only important to Europe's green ambitions, but also the prospects for the sector's jobs.
00:21:01 Speaker_08
Closing factories in Europe and reducing jobs in the automotive sector will affect the entire value chain. The economic and societal consequences could be huge.
00:21:13 Speaker_08
Public and private decision makers should focus on regaining our leadership position and strengthening Europe's competitiveness to ensure manufacturing in Europe.
00:21:24 Speaker_07
And finally, our fourth expert witness sounds a warning which has also been voiced by leaders in the car-making industry after the introduction of punitive tariffs on Beijing.
00:21:36 Speaker_07
He points out that the operations of Europe's car makers are intertwined with those of China through joint ventures, expertise, and supply chains. And entering into tit-for-tat protectionism could well work against them.
00:21:52 Speaker_08
So any trade escalation or retaliation that could affect our supply chains worldwide should be avoided. And at the end, any additional costs due to trade restrictions will have to be paid for.
00:22:09 Speaker_08
So it would be good if the EU and China could come to an agreement to lower the tension on trade in this area.
00:22:20 Speaker_07
Now we return to our question. Is Europe's car industry at a crossroads? A vast shift of the vehicle manufacturing landscape has been brought about by the drive towards clean energy and the digital revolution.
00:22:37 Speaker_07
Europe has been caught on the back foot due to its high production costs, lack of access to components to make batteries and a strategic slowness.
00:22:48 Speaker_07
Now the European Union has tried to even up the playing field by putting tariffs on cheaper Chinese competition, effectively raising the cost of cars from China to European prices. But there is much more coming down the track.
00:23:04 Speaker_07
America's incoming president Donald Trump is threatening to ramp up tensions over trade. Chinese car firms are looking to avoid tariffs in Europe by strengthening their bases inside the EU.
00:23:20 Speaker_07
Finally, we should not forget that the technology battleground of the future has already begun to take shape. One in which our roads will be populated by vehicles which are driven not by humans, but by computers.
00:23:37 Speaker_07
This inquiry was presented by me, Tanya Beckett, produced by Jill Collins, researched by Matt Tolson, and the editor was Tara McDermott. The technical producer was Matthew Dempsey.
00:23:57 Speaker_05
Available now on the documentary from the BBC World Service.
00:24:02 Speaker_03
A year ago, the libertarian Javier Mele became president of Argentina. Wielding a chainsaw, he promised to slash government spending and to create the world's freest economy. I'm Charlotte Pritchard.
00:24:13 Speaker_03
Join me to find out how Mele is changing the lives of Argentines.
00:24:18 Speaker_05
Listen now by searching for the documentary wherever you get your BBC podcasts.