Reviving EU competitiveness: Draghi’s roadmap for the automotive sector

A legacy at risk

The automotive industry plays a significant role in the European economy, employing 13,8 million people, contributing 8% of the manufacturing value added, and boasting a trade surplus of €117 billion in 2023. However, this legacy is under threat. The industry is undergoing its most significant transformation in over a century, driven by shifting demand to emerging markets, an emphasis on zero-emission vehicles, and the integration of digital technologies.

One key challenge is the geographical shift in automotive demand. The EU’s share of global vehicle production is shrinking, with more dynamic growth happening in China and other emerging economies. China, in particular, has rapidly become a dominant player in electric vehicle production, and its exports to Europe have surged fivefold since 2017. This shift threatens the EU’s ability to maintain its traditional leadership in the automotive industry.

The Electric Vehicle revolution

The global transition to electric vehicles (EVs) is a central theme in the automotive industry’s transformation. According to the report, EVs accounted for over 22% of new car registrations in Europe in 2023. This represents a significant growth from previous years, but the transition to EVs presents both opportunities and challenges for the EU.

For one, the shift to EVs requires a complete overhaul of existing automotive supply chains. Electric vehicles rely on different materials, technologies, and production processes compared to traditional internal combustion engine (ICE) vehicles. European car manufacturers face increasing pressure to innovate while ensuring they remain cost-competitive, as Chinese manufacturers are ahead in terms of EV technology and cost efficiency.

The production of EVs has far-reaching implications for labor, as the skills required for manufacturing these vehicles differ substantially from traditional automotive production. Car manufacturers will need to invest in reskilling workers and automating processes to remain competitive. At the same time, Europe faces a critical need to develop infrastructure for EVs, particularly charging stations, to support the growing number of electric vehicles on its roads.

The digital transformation of vehicles

As the automotive industry moves towards green mobility, it is also integrating digital technologies at a rapid pace. The report emphasises that software and electronics are set to account for up to 50% of a vehicle’s value by 2030. Artificial intelligence (AI), autonomous driving, and advanced driver assistance systems (ADAS) are becoming essential components of modern vehicles.

To remain competitive, the EU must focus on developing and adopting these digital technologies. This will require significant investment in research and development (R&D), digital infrastructure, and workforce training. At present, European manufacturers are lagging behind Chinese competitors in several key areas, including autonomous driving technology and vehicle software. To close this gap, the EU will need to promote closer collaboration between automakers, tech companies, and research institutions.

Addressing the supply chain gaps

One of the most significant challenges facing the European automotive industry is the fragmentation of its supply chain, particularly in comparison to China and the United States. The report highlights that European car manufacturers face higher production costs—around 30% more than in China—due to several factors, including higher energy prices, labor costs, and a lack of coordination across the value chain.

The EU proposes several measures to address these challenges. One critical step is to enhance coordination between different sectors of the automotive value chain, from raw materials to final production. The European Battery Alliance (EBA), established in 2017, is a key initiative aimed at building a sustainable battery supply chain in Europe. However, the EU recognises that more must be done to reduce dependence on non-European sources of raw materials, particularly for critical components such as lithium and other rare earth elements.

Regulatory coherence and technological neutrality

The EU’s regulatory framework has been one of its strengths in fostering innovation, but it can also be a double-edged sword. Multiple layers of legislation, including emissions standards, reporting requirements, and sustainability regulations, have created challenges for the automotive industry. To ensure the EU remains competitive, the report calls for greater regulatory coherence, predictability, and consultation with industry stakeholders.

One critical aspect of the EU’s regulatory approach is the principle of technological neutrality. While the EU has pushed for the rapid adoption of electric vehicles, the report stresses the importance of maintaining flexibility in terms of alternative fuel sources. Hydrogen, synthetic fuels, and other low-carbon technologies could play a crucial role in decarbonising the automotive sector, particularly for heavy-duty vehicles.

Infrastructure and charging network development

The success of Europe’s transition to electric mobility hinges on the availability of a robust and widespread charging network. Currently, charging infrastructure is unevenly distributed across member states, with significant gaps in rural areas and along major highways. The report emphasises the need for a massive investment in both light-duty and heavy-duty vehicle charging networks, as well as upgrades to the electricity grid to support the increased demand for power

Public investment, combined with private sector involvement, will be essential to ensure that charging infrastructure is rolled out in a timely and cost-effective manner. The EU’s Connecting Europe Facility (CEF) and structural funds are key instruments that can help drive this investment. In addition, the EU must prioritise the development of fast-charging points along major transport corridors to support the growing number of electric trucks and buses.

Skills development and reskilling

The shift to electric and digital vehicles will dramatically change the labor landscape of the automotive industry. The report highlights the need for a coordinated approach to upskilling and reskilling workers to meet the demands of the new automotive ecosystem. In particular, there will be growing demand for skills in software development, cybersecurity, and battery technology.

To address this, the EU proposes the creation of an “Automotive Skills Academy” to provide standardised training programs across member states. This initiative would focus on areas such as EV maintenance, vehicle software development, and digital manufacturing. The report also calls for targeted support for small and medium-sized enterprises (SMEs), which may face particular challenges in adapting to the new demands of the industry.

Conclusion: Navigating the path forward

The EU’s The Future of European Competitiveness report presents a sobering yet optimistic outlook for the automotive industry. While the challenges are significant—ranging from high production costs and supply chain fragmentation to the rapid technological advancements of global competitors—there are clear pathways to restoring Europe’s leadership in the sector.

Through coordinated action on infrastructure, regulatory reform, skills development, and innovation, the EU can ensure that its automotive industry remains a vital part of the region’s economy, driving growth and sustainability well into the future. The time to act is now, as the global automotive landscape continues to evolve at breakneck speed.