Key Takeways
The EU has legislated to ban new internal combustion engine car sales by 2035 to achieve carbon neutrality by 2050. However, Europe’s automotive industry, which makes up 7% of the EU’s GDP, faces challenges transitioning to electric vehicles (EVs), lagging behind China and relying on lower-priced Chinese imports.
Achieving the EU’s goal of fully electric vehicle sales by 2035 is uncertain, with Battery Electric Vehicles (BEVs) accounting for only 12.5% of total vehicle sales by mid-2024. Significant obstacles include insufficient industrial capacity, slow battery supply chain investments, and a lack of charging infrastructure needed to support the transition.
- China’s aggressive industrial strategy, leveraging extensive subsidies, has positioned it as a dominant player in the EV market. While investing over $231 billion from 2009 to 2023 in the EV sector, China outpaces Europe, emphasizing the urgency for the EU to bolster its domestic manufacturing capabilities to stay competitive.
The EU voted to ban new internal combustion engine car sales by 2035, aiming for carbon neutrality by 2050. This EV transition disrupts Europe’s auto industry, which lags behind China. The EU imposed tariffs on Chinese vehicles in response. The challenge now for the EU is to maintain a leading automotive manufacturing industry while achieving the carbon neutrality targets it has set itself.
The electric car, a major change for the European automotive industry
The ban on the sale of new internal combustion engine cars from 2035 marks a major step forward in the EU’s climate strategy, given that 15% of total greenhouse gas (GHG) emissions in Europe come from passenger cars. The success of this ban is not guaranteed, however, as it depends both on the transition by carmakers to 100% electric ranges (Battery Electric Vehicles, BEVs) and on the development of suitable infrastructure to encourage their purchase by European users.
The European automotive industry represents 7% of the EU’s GDP and is one of the continent’s last industrial bastions. Europe’s ability to produce its own electric vehicles (EVs), over and above its climate objectives, therefore represents a major economic challenge. Despite their growth, sales of BEVs in Europe are still insufficient to achieve the objective of 100% electric vehicles by 2035. BEVs, the only vehicles authorised for sale from 2035, accounted for just 12.5% of total vehicle sales in mid-2024, far behind hybrid (HEV) and internal combustion vehicles. The current rate of growth is also largely underpinned by imports of Chinese electric cars… at prices that are often much lower than those of European manufacturers.
EU struggling to meet its own targets
The share of Chinese imports illustrates the difficulties the EU is having in meeting its ambitions in terms of EV production. Insufficient industrial capacity, particularly in mining and battery production, is a major obstacle. Despite recent mining projects, only a small proportion of critical materials requirements can be met.
Despite €3 billion mobilised through the European Battery Alliance created in 2017, only 3% of the investment needed in the battery supply chain has been made. The same applies to charging infrastructure, of which there are too few. The target of 3.5 million charging points installed by 2030 is still a long way off, despite the 220,000 new charging points installed in 2024.
The final barrier to the adoption of EVs is their cost. Although subsidies exist in several EU countries, they are not uniform and do not fully compensate for the price differential with combustion and hybrid vehicles.
China takes centre stage
These European difficulties are underlined by China’s meteoric rise in the sector. Beijing’s industrial strategy, supported by considerable subsidies, has enabled its national champions such as BYD and CATL to take a dominant position on the world market throughout the value chain – from mining to car manufacturing. The Chinese government has invested more than $231 billion in the EV industry between 2009 and 2023, in addition to subsidies for battery manufacturers and producers of essential raw materials such…
