Automotive giants are closing down in Europe! Even Europe's prosperity is at risk.

While German automotive giant Volkswagen (VW) and other European car manufacturers consider closing some of their factories, their Chinese competitors are looking for production sites in Europe. The European automotive industry is struggling. Car sales are lower than expected, and a large portion of new electric models remain unsold.

AUTOMOTIVE GIANTS ARE CLOSING DOWN

It's not just Volkswagen (VW) that is facing mandatory factory closures; Renault and Fiat are also producing more cars than they can sell. According to a study by Bloomberg Intelligence, one out of every three factories in Europe owned by BMW, Mercedes, Fiat, Renault, and Volkswagen is operating below capacity due to low demand. Some factories are unable to produce even half of the cars that their production lines can handle.

The situation is particularly dire at the Mirafiori factory in Turin, where Stellantis Group produces the fully electric Fiat 500e. Production there has dropped by over 60% in the first half of 2024. The Audi factory in Belgium, where the expensive Q8 e-tron is produced, is also on the verge of collapse.

CHINA RISES WHILE EUROPE FALLS IN THE AUTOMOTIVE INDUSTRY

Sales issues are also affecting the Renault factory in Douai, northern France, and the VW factory in Dresden. Electric cars produced here are finding almost no buyers, and manufacturers are incurring losses.

Carsten Brzeski, Chief Economist at ING, says, "We are in the midst of a structural change. This is not only true for VW but for the entire automotive industry. We can see that this international trend towards increased electromobility is leading to more competition."

The pressure on Europe's car manufacturers, especially from China, is increasing. Despite the punitive customs duties imposed by the EU on Chinese electric cars, manufacturers from the People's Republic are determined to establish a permanent presence in the EU market.

In addition to the Geely brand, Lynk & Co, Chery, Great Wall Motor, and BYD also want to produce their own e-cars in their own factories in Europe in the future.

CRITICISM OF FAILURE IN THE AUTOMOTIVE INDUSTRY IN EUROPE

Why are European car manufacturers struggling so much with the transition to electromobility? Did their counterparts in China miss the train?

Carsten Brzeski says the industry is dealing with many problems at the same time. Many issues, such as stronger international competition in the automotive sector and lower competitiveness among Europeans, are coming together.

Hans-Werner Sinn, who has been the president of the Ifo Institute in Munich for many years, does not see this as a management failure: "We cannot say that Volkswagen or others missed the trend in the market. Rather, European politicians failed to realize that China was moving quickly and decisively in this area. This may be a shortcoming."

Sinn argues that the "Green Deal" agreement, which bans internal combustion engines in the EU from 2035 onwards and increasingly strict emission standards, has radically invalidated market laws and put the industry on a politically guided transformation path. He argues that if there is no course correction, Europe will be the loser.

CHINA'S TECHNOLOGY ADVANCE IS MAKING A DIFFERENCE

According to Sinn, the increase in e-car production in China and France is seen as an opportunity to break the technological dominance of German car manufacturers in internal combustion engines. However, countries like France and Italy have also started to question the issue. They have realized that the Chinese benefit the most from the radical change towards electromobility.

Carsten Brzeski says that the zigzag drawn by politicians also has an impact on these uncertainties: "What will happen to internal combustion engines now? Will they stay or go? When will they be phased out? Will the deadline be extended or not? In addition to these uncertainties, the German government's decision to end the e-car incentive premium by the end of 2023 has added insult to injury. In this situation, it is not surprising that e-vehicles are left in the hands of manufacturers."

EUROPE'S PROSPERITY IS AT RISK

According to ING's Chief Economist Brzeski, there is no doubt that a possible decline in the automotive industry in Germany and Europe would also jeopardize the current prosperity. In Germany alone, the automotive industry, along with suppliers, the ancillary industry, and all other companies doing business with car manufacturers, accounts for seven to eight percent of economic output.

NEW VICTIMS MAY EMERGE IN EUROPE

One of the brands that has hit the brakes is the Italian automotive giant Fiat. Production of the Fiat 500e model at the Mirafiori factory in Turin has been suspended for a month due to declining sales.

Hans-Werner Sinn summarizes the current situation in the automotive industry as follows: "Volkswagen is just an early victim. Soon, there will be more to come."