Europe’s Automotive Industry at a Crossroads: China’s Rise and the Fight for Competitiveness
For decades, Europe held a dominant position as the world’s leading producer of automotive components. However, that leadership is now under serious threat. China has rapidly expanded its automotive supply chain, surpassing the European Union in value-added production and creating significant challenges for European manufacturers.
The Shifting Landscape of Automotive Production
Until 2018, the EU, measured by value creation, was the largest producer of automotive components globally. Since then, the markets have diverged. While China and the United States have increased their production, the EU’s output has declined. Between 2018 and 2025, China’s value-added production surged by approximately 40% to over $380 billion, reflecting the rapid expansion of its automotive supply chain. US production grew by around 11% in the same period.
In stark contrast, EU production decreased by roughly 15% to around $180 billion. This means China now produces more than twice as much as the EU in this sector.
“China’s automotive supply industry is growing faster than ever and is increasingly posing major challenges to European suppliers,” says Benjamin Krieger, Secretary General of CLEPA. “If Europe is to remain a significant production location, we need measures to strengthen our competitiveness and ensure a level playing field for all suppliers. Balancing the protection of Europe’s industrial strength with the promotion of employment and investment must be the core objective of the Industrial Accelerator Act.”
The Growing Trade Imbalance
Chinese imports now account for nearly one-third of the EU supply market. In 2025, their value increased by 12% to over €8 billion. Imports from Turkey have doubled over the past five years, reaching around €5 billion. Imports from the UK, Japan, and South Korea have remained relatively stable, each delivering approximately €2.5 billion worth of components to the EU market in 2025.
However, EU exports of automotive components to China have fallen below import levels. In 2025, exports to China reached only €7.5 billion. The EU now records a trade deficit with China of around €650 million for traditional automotive components. EU exports to China have decreased by approximately €3 billion over the past five years, reversing a previously positive trade balance. Relationships with traditional trading partners like the UK and the US, which previously compensated for the declining trade surplus with China, are also deteriorating.
Rare Earth Restrictions and Supply Chain Disruptions
Adding to these challenges, China’s export restrictions on rare earth elements and magnets are causing widespread disruption in the European automotive supply chain. Several production lines and plants across Europe have already been forced to shut down, and further impacts are expected as inventories deplete. Approximately one-quarter of export license applications to Chinese authorities have been approved, with procedures described as opaque and inconsistent.
These restrictions affect both combustion engine and electric vehicles, highlighting the broad consequences of the measures. The situation underscores the importance of constructive China-EU cooperation to ensure stable and resilient supply chains for the global automotive sector.
What’s Next for European Automotive?
The European automotive industry faces a critical juncture. To regain competitiveness, several key strategies are essential. These include preserving manufacturing capacity within Europe, addressing structural cost disadvantages, and implementing targeted measures to support domestic investment. A focus on reducing dependency on Chinese rare earth supplies is also crucial to mitigate potential long-term production risks.
The Industrial Accelerator Act is positioned as a key tool in this effort, aiming to balance industrial strength with employment and investment. However, its success will depend on effective implementation and a coordinated approach between EU member states.
Did you know? China’s rapid growth in automotive production is not solely due to increased domestic demand. It’s also driven by its role as a major exporter of vehicles and components to global markets.
FAQ
Q: What is CLEPA?
A: CLEPA is the European Association of Automotive Suppliers, representing over 3,000 companies across Europe.
Q: What are rare earth elements and why are they important?
A: Rare earth elements are a set of 17 chemical elements used in the production of many high-tech products, including electric vehicle motors and magnets.
Q: What is the Industrial Accelerator Act?
A: It is a proposed EU initiative aimed at strengthening the competitiveness of the European industrial sector, including the automotive industry.
Q: Is the EU taking steps to address the trade imbalance with China?
A: The EU is exploring various measures, including strengthening trade negotiations and promoting domestic production.
Pro Tip: Diversifying supply chains and investing in research and development of alternative materials are crucial steps for European automotive manufacturers to reduce their reliance on China.
Stay informed about the latest developments in the automotive industry. Visit the CLEPA website for more information and updates.
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