The Future of the EU Automotive Sector

11.18.2021

This study provides an independent overview of the automotive industrial landscape in the EU. Specifically, the study assesses green and digital trends currently reshaping the automotive sector and provides recommendations considering the adequacy and consistency of ongoing and future EU actions.

This study was conducted in the 3rd quarter of 2021 by order of the Committee on Industry, Research and Energy (ITRE) of the European Parliament and contains recommendations on optimizing the balance between accelerating environmental sustainability, digitalization and increasing the global competitiveness of the EU automotive industry within global value chains (GVC). Below are some conclusions reached by researchers who have considered several issues related to this area. 

Modern trends

The modern automotive industry is globalized, but it is built based on regional clusters, where manufacturers of original components (OEMs) are firmly connected with suppliers. The COVID-19 pandemic disrupted existing production chains. In response, automakers have begun to invest in flexible and sustainable global value chains by increasing the number of suppliers at the regional level. New business models based on digitalization and big data have been developed.
European automotive market participants are ready to manufacture electric vehicles, whose development and sales were accelerated by the COVID-19 pandemic. This growth has generated investments in the production of lithium-ion batteries throughout Europe over the past two years. The number of electronic components and their content is also growing, which attracts new players to the auto industry. 

«Greening» of the European automotive industry

In 2020, Europe ranked first in the world in terms of penetration of electric vehicles. The European electric car market will continue its growth in the current decade and will become one of the most promising on the planet.
European companies are rapidly developing in the production of lithium-ion batteries. Most of the developments in this area are conducted by Asian manufacturers, but it is expected that European companies, some of which are newcomers, will be able to gain their market share. There are challenges in the field of sustainable development of production and disposal of batteries. 

Digitalization of the European automotive industry

The automotive sector is moving towards a digital orientation, which entails an increase in the importance of digital products and services. Participants in the EU automotive sector have opportunities for innovation in software and autonomous driving technologies, while lagging in the field of information and communication technologies, which, due to their increasing importance, pushes European automakers out of leadership positions. The existing shortage of qualified software developers will increase with the advancement of the digital transition.
The current shortage of semiconductors slows down the production and development of vehicles; however, huge investments in the EU electronics industry can solve this problem. 

New business models and sustainability of the automotive industry

The influence of related suppliers and at the technological forefront of the electrification and battery supply chain will increase significantly. Large producers are increasingly diversifying their supplies and adjusting production to meet demand. This provides opportunities for European small and medium-sized producers with technical and commercial knowledge to internationalize to gain better access to global value chains. 

European Union policy in response to challenges

In recent years, the EU has been actively pursuing a policy of double transition of industry and EU society. Initiatives were put forward to support the goal of decarbonizing the economy and maintaining leadership in the digital world. Existing trends have been accelerated by the COVID-19, which has pushed the industry and policy makers to take more decisive action.
The automotive industry is at the center of a digital and green transition, and it has potential as the industry focuses on both alternative fuels and smart and connected mobility. The entire value chain in the sector should contribute to the formation of new international standards for safe, sustainable, affordable, reliable, and sustainable mobility.

Conclusions

The EU and relevant companies have developed various strategies to ensure the competitiveness of the EU automotive sector. For example, industrial alliances have proven effective in unifying industry and increasing investment in batteries. The importance of enabling infrastructure has also been recognized in the Alternative Fuel Infrastructure Directive and the 5G Action Plan. Finally, the Skills Pact and the Automotive Skills Alliance aim to address the skills shortage.
At the European level, many policy decisions have been taken to support the transition to green and digital technologies for a sustainable automotive sector. However, there are also certain gaps and opportunities for further action. For example, differences in the charging and deployment of digital infrastructure in EU member States or the lack of strong players in the field of digital technologies and information and communication technologies in the EU.

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