The Future of European Automakers: Navigating the EV Transition and Combustion-Engine Phase-Outs

The European automotive industry stands at a crossroads, grappling with the dual pressures of regulatory mandates and global competition as it transitions to electric vehicles (EVs). By 2035, the European Union will enforce a complete phase-out of new combustion-engine vehicles under Regulation (EU) 2023/851, part of its "Fit for 55" climate package [1]. This regulatory shift, coupled with the rise of Chinese EV manufacturers, is reshaping the competitive landscape and testing the profitability of traditional automakers.

Regulatory Pressures and Strategic Realignments

The EU’s 2035 combustion-engine phase-out has forced automakers to accelerate electrification. By 2030, new passenger cars must reduce CO₂ emissions by 55% compared to 2021 levels, with a 100% reduction mandated by 2035 [1]. These targets have spurred significant investments in battery production and charging infrastructure. For instance, €130 billion is projected to be allocated to EV charging infrastructure alone by 2030 [2]. However, the pace of adoption remains uneven. In 2025, EV sales in Europe are expected to reach 25% of the market, far below the 55% share projected for 2030 under current policies [3].

Automakers like Volkswagen, Stellantis, and BMW—collectively accounting for 45% of European EV sales in 2023—are retooling production lines and expanding electrified powertrains [4]. Yet, the transition is costly. The European Automobile Manufacturers’ Association (ACEA) has called for relief from 2025 compliance costs, citing financial strain from retooling and supply chain disruptions [3].

Global Competition and Market Share Erosion

Chinese EV manufacturers have emerged as a dominant force, capturing 27.2% of the EU market by Q2 2024 through aggressive pricing and state-backed subsidies [1]. In response, the European Commission imposed tariffs of 7.8% to 35.3% on Chinese EV imports in October 2024, targeting non-cooperating firms like SAIC [1]. Despite these measures, companies like BYD are expanding local production in Europe, aiming to capture 15% of the market [1].

This competition has eroded European automakers’ profitability. For example, Stellantis and Volkswagen have seen stock prices decline by 37% and 23%, respectively, in 2024, reflecting investor concerns over margins and market share [3]. Chinese automakers, meanwhile, benefit from lower production costs and economies of scale, enabling them to undercut European rivals.

Strategic Investments and Supply Chain Securitization

To counter these challenges, European automakers are securing raw material supplies and forming strategic partnerships. Stellantis, Volkswagen, and Glencore have invested in copper and nickel projects to stabilize battery production costs [4]. Additionally, Renault has partnered with suppliers to build a sustainable European EV value chain [5]. These efforts aim to reduce dependency on volatile global markets and mitigate the impact of rising battery prices.

However, profitability remains elusive. The EV sector is marked by price wars and overcapacity, with margins shrinking as automakers compete for market share. For instance, the projected revenue for the European EV market in 2025 is $224.9 billion, but this growth is tempered by high R&D costs and infrastructure bottlenecks [6].

Financial and Geopolitical Headwinds

Geopolitical tensions further complicate the transition. The Ukraine war disrupted supply chains for critical components like neon gas and wiring harnesses, forcing production halts [3]. Meanwhile, U.S. tariffs on European automotive exports and retaliatory measures threaten to exacerbate financial pressures. In 2025, global auto sales are projected to reach 89.6 million units, with Europe contributing just under 15 million—a decline from pre-pandemic levels [7].

Future Outlook: Balancing Innovation and Profitability

Despite these challenges, the European EV market is expected to grow at a compound annual rate of 7.5%, reaching $300.4 billion by 2029 [6]. Automakers are exploring diversified strategies, including hybrid models and vehicle subscriptions, to cater to consumer preferences while meeting regulatory targets [3]. Innovations like vehicle-to-grid (V2G) technologies and dynamic charging could also enhance cost-effectiveness [8].

For investors, the key lies in identifying automakers that can balance regulatory compliance, supply chain resilience, and competitive pricing. Those that successfully integrate vertical integration, strategic partnerships, and consumer-centric innovations may emerge as leaders in the electrification era.

Source:
[1] European Automotive Crisis: Tariffs, Targets and Competition in 2025 [https://www.debugliesintel.com/european-automotive-crisis-tariffs-targets-and-competition-in-2025/]
[2] European automotive industry: What it takes to regain competitiveness [https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/european-automotive-industry-what-it-takes-to-regain-competitiveness]
[3] Automotive Industry Faces Uncertainty Heading into 2025 [https://evmagazine.com/electric-cars/automotive-industry-faces-uncertainty-2025]
[4] Trends in the electric vehicle industry – Global EV Outlook 2024 [https://www.iea.org/reports/global-ev-outlook-2024/trends-in-the-electric-vehicle-industry]
[5] renaulution, now revolution [https://www.press.renault.co.uk/releases/3021]
[6] Electric Vehicles - Europe | Statista Market Forecast [https://www.statista.com/outlook/mmo/electric-vehicles/europe]
[7] 2025 Auto Sales Forecast: 89.6M Vehicle Sales Worldwide [https://www.spglobal.com/automotive-insights/en/blogs/2025-auto-sales-forecast-global]
[8] Advancements, challenges, and prospects of cost-effective electric vehicles [https://www.sciencedirect.com/science/article/pii/S1110016825007173?dgcid=rss_sd_all]