Europe's automotive industry, a vital contributor to the continent’s economy with an output of nearly €2 trillion, is facing the possibility of losing up to €400 billion as it shifts towards electric vehicles, according to a study by McKinsey. The study indicates that if current trends persist, Europe's global market share in the automotive sector could decline from 60% to 45%, as competition from new players, particularly from China, intensifies.
The transition to electric vehicles is gaining momentum globally, with companies like Tesla and China's BYD already dominating 55% of the electric car market. Meanwhile, Europe is lagging behind in key areas, such as battery production, which poses a significant challenge. McKinsey warns that without building a robust ecosystem for electric cars—including battery manufacturing and charging infrastructure—Europe's automotive industry could face further setbacks.
Despite these challenges, the report outlines a more optimistic scenario in which the industry can achieve moderate growth. For this to happen, European car manufacturers must adopt innovative strategies, invest in growing markets, and embrace cooperation with new partners. The report also emphasizes the importance of catching up in software development, a critical component of modern electric vehicles.
The consultancy analyzed three potential scenarios for the impact of the transition on Europe's automotive sector. In the worst-case scenario, €130 billion in value could be lost if no further efforts are made beyond current plans. However, the transformation to electric vehicles could also present an enormous opportunity, with the potential to generate an additional €300 billion in value by 2035.
To retain its competitive edge, Europe must make significant investments in the EV ecosystem. This includes scaling up renewable energy sources, expanding power grids, speeding up regulatory approvals, and addressing the shortage of skilled workers. Moreover, investments in semiconductor production and artificial intelligence will be necessary to position Europe as a leader in EV manufacturing.
The McKinsey study highlights the need for political support to safeguard the industry’s future. Accelerating the energy transition, facilitating innovation, and ensuring Europe remains an attractive production location for electric vehicles will be crucial steps in maintaining the region’s relevance in the global automotive market.
While the shift to e-mobility will undoubtedly reshape the industry, the report emphasizes that the potential for growth is significant if Europe can rise to the challenges and capitalize on emerging opportunities.
