Summary of the Key Points
The European automotive market is facing a crisis of transitioning between old and new systems: A decade ago, there was a misjudgment about the nature of the new energy revolution (the belief that simply replacing engines with electric ones would allow companies to maintain their previous advantages). Coupled with a mature but inflexible industrial system that struggles to adapt quickly, Chinese automakers such as BYD and Chery have managed to overtake Japanese brands in the European market due to their long-term strategic planning, technological advancements (in areas like battery technology, electric drives, and intelligent cockpits), and cost advantages. These Chinese companies are even challenging the dominance of German automakers. Although European firms are eager to cut costs and seek external partnerships (for example, Volkswagen collaborating with Xpeng for intelligence capabilities), systemic constraints (such as supply chain agreements and union commitments) are slowing down their transformation process. The EU's protective policies have not been effective in addressing this challenge, and there currently seems to be no viable “Plan B” to counter the impact of Chinese automakers.
Detailed Analysis
1. The Mistake of a Decade Ago: Underestimating the True Nature of the Revolution
When Mercedes-Benz and Audi introduced hybrid models in 2013, European giants thought it was straightforward to replace internal combustion engines with electric ones, modifying the existing fuel platforms to produce electric vehicles while continuing to earn high profits from luxury cars. They failed to realize that Tesla represented a fundamental shift in the automotive industry—transforming it from a mechanical one into one driven by software, supply chains, and user experience. This was like trying to make smartphones using the same methods as flip phones; it was completely different. At that time, the market was still dominated by fuel vehicles, with nearly 5.7 million units produced in Europe each year, and no one took Tesla’s warnings seriously. Ten years later, German domestic production had declined by 1.5 million units, and Chinese automakers had broken down the industrial barriers that Europe had built over 40 years. It became clear that past achievements were of no use, and there was no shortcut through the technological gap.
2. The System as Both Advantage and Barrier: Desire to Change, but Inability to Act
The strength of European automotive companies lies in a mature system that has been established over decades. However, this very system has become a hindrance to transformation. To move towards electrification, they would need to alter their supply chains, break union employment agreements, and adjust factory capacities—all of which come with significant costs and risks. Europeans are accustomed to reducing uncertainty, so they prefer to cut staff (with the EU suggesting a maximum reduction of 600,000 jobs) rather than addressing the underlying issues. It’s like trying to make cars for 2030 using processes from 1990; how can that be fast?
3. Chinese Automakers Didn’t Arrive Suddenly: Years of Preparation and Solid Foundations
Chinese automakers’ entry into Europe was not a sudden attack but the result of decade-long efforts. For instance, SAIC MG returned to the UK in 2011, and Geely acquired companies like Magnesium Copper and Lotus in 2015, laying the groundwork for their success. Their advantages include:
- Technological Advancement: Mature and reliable battery, electric drive, and control systems; intelligent cockpits that are more user-friendly than those of European cars.
- Cost Efficiency: They can offer similar configurations at lower prices.
- Market Focus: Chinese companies have targeted specific segments, with plug-in hybrids accounting for 34% of the European market (a record high), and pure electric vehicles accounting for 15%. For example, BYD’s Seal U has even managed to surpass Volkswagen’s Tiguan in sales in Germany.
These advantages have filled gaps in the European market: European cars struggle to sell due to their lack of competitiveness in new energy technologies, allowing Chinese brands to gain a foothold.
4. Europe’s Delayed Response: Efforts from Companies and the EU, but Insufficient Solutions
Both European automakers and the EU are now anxious:
- Automakers: CEOs are calling on the EU to take action against Chinese competitors and seeking partnerships with companies like Rivian for software and Xpeng for intelligence capabilities. BMW and Mercedes-Benz have also increased their R&D efforts in China.
- EU: The EU has introduced the “Industrial Acceleration Act” to bring supply chains back to Europe and is considering relaxing the 2035 ban on fuel vehicles to give companies more time to adapt. However, these measures are limited. Protectionism and the need for transformation create a dilemma; tariffs cannot overcome technological gaps, and automakers’ R&D cycles (about three to five years per new model) cannot keep up with the rapid changes in consumer preferences. German Chancellor Merkel has expressed concern: “How can we compete with China if we work only four days a week?”
5. Time Running Out: Changing Consumer Preferences
The most concerning trend is the changing attitudes of European consumers. Rising oil prices are making them more inclined to switch to electric vehicles, and their acceptance of Chinese brands is on the rise. Studies suggest that within a year, one in every three new energy vehicles sold in Europe could be from Chinese manufacturers. Once consumers form these preferences, it will be difficult for European companies to regain their market share.
The current situation in Europe is one of holding onto the old while failing to embrace the new. The EU’s policies and automakers’ efforts are insufficient to reverse this trend. It’s like trying to “dance with chains on feet”—using outdated methods to produce cars for a future that has already arrived. The future of the European automotive market is uncertain as it struggles to transition between old and new systems.
(The analysis is presented in plain language to make it understandable to non-financial readers, explaining the challenges faced by the European automotive industry and the rise of Chinese automakers.)