European Car Manufacturers Face Dependence on China
As if European car manufacturers needed more reminders of their dependence on China, new ones keep popping up. The industry is preparing for production halts after chip supplier Nexperia warned that a dispute between the Netherlands, where the company is based, and the company’s Chinese owners could hit supply.
Production Halts and Supply Chain Problems
They are also bracing for a shortage of key raw materials for electric motors after new Chinese customs figures released last week showed China’s rare earth exports fell 31% in September from August. On Wednesday, German car giant Volkswagen warned that recent supply chain problems could lead to production losses.
Consequences of Dependence on China
Particularly for Germany, Europe’s largest automobile manufacturer, the consequences of this inequality extend beyond the production line and threaten prosperity itself. The combustion engine is not just part of a car, it is the ultimate competitive advantage of the automotive industry in Germany.
Rare Earths
Major car manufacturers already rely heavily on China for sales, the largest single market for the three major German car manufacturers Volkswagen (VW), Mercedes, and BMW. But it is foreign dominance in certain auto components and suppliers that threatens the industry’s base at home. China accounts for more than 90% of rare earth exports to the EU.
Chip Shortage
Chip shortages should be a thing of the past. After a supply shortage during the COVID-19 pandemic led to costly production halts in 2021, automakers vowed to diversify their sourcing. At the policy level, an important part of automakers’ plans was to lure production from Taiwan, Korea, Japan, and China.
Battery Strategy
Unlike chips and rare earths, batteries represent a significant part of the electric vehicle value chain, almost 30%. European car companies want to produce batteries themselves instead of sourcing them elsewhere. They currently rely on exports from Korea and China, which have the largest market share.
Role of China in Battery Production
Another question is the role of China, which has imposed new export restrictions on technology sharing and know-how of its cutting-edge battery technology. European companies are now trying to develop their own battery technology to reduce dependence on China.
Impact on Employment
The risks for the European automotive industry have now only become clearer, with Germany in particular struggling with difficulties. The Association of the Automotive Industry estimates that around 773,000 people were employed in the industry in 2024. The number, which has been declining in recent years, is now declining rapidly.
Reason for Optimism
Battery projects are progressing. Volkswagen is pushing ahead with its first gigafactory in Salzgitter, Germany, as is the Renault-led battery alliance Verkor, which is building a similar production hall in Dunkirk, France. New technologies and more efficient recycling could reduce the amount of rare earth magnet imports needed for electric vehicles.
Future of the European Automotive Industry
Europe needs to develop more future technologies in order to successfully reduce dependencies. The European automotive industry will have to go through a fundamental crisis, but in the end, it is expected to emerge stronger. The durability of Chinese competitors remains an open question, and Europe has the opportunity to develop its own technologies and reduce its dependence on China.
