As if European carmakers needed further reminders of their dependence on China, new reminders keep emerging.
The industry is preparing to halt production after chip supplier Nexperia warned that a dispute between the Netherlands, where the company is based, and the company’s Chinese owners could affect supplies.
They are also preparing to put pressure on key raw materials for electric motors after new data from China’s customs office released last week showed that China’s rare-earth exports fell 31% from August to September.
Both issues come in a year of declining profits and job cuts and point to the bigger puzzle facing the continent: Domestic suppliers built on combustion engine success are struggling, while suppliers of critical components for electric cars, such as magnets, chips and batteries, are concentrated elsewhere.
Especially for Germany, Europe’s largest carmaker, the consequences of that inequality extend beyond the production line and threaten its prosperity.
“The combustion engine is not just part of a car, it is the ultimate competitive advantage of the automotive industry in Germany,” said Andreas Herrmann of the University of St. Gallen in Zurich. “Obviously the industry needs more time to develop new areas, new parts, to have a competitive advantage,” he told DW.
rare rare earth
Major automakers already rely heavily on China for sales, which is the largest single market for Germany’s Big Three automakers, Volkswagen (VW), Mercedes and BMW. But it is foreign dominance in some car components and supplies that threatens the base of the domestic industry.
Last spring saw the first slowdown in rare-earth magnet exports from China, as Beijing hit back at new US trade tariffs.
according to a search According to the Mercator Institute for China Studies (MERICS) in Berlin, Germany, China accounts for more than 90% of rare-earth exports to the EU.
There was a surge in exports in the summer after the agreement between the US and China. Now Beijing is returning to a tough stance.
Earlier this month, it created a licensing arrangement for many rare-earth exports, a measure that experts say could further slow imports into Europe.
chip shortage
Chip shortage was considered a problem of the past. After costly production shutdowns in 2021 due to supply shortages during the COVID-19 pandemic, carmakers vowed to diversify their sourcing.
At the political level, boosting production away from Taiwan, Korea, Japan and China has been a big part of automakers’ plans, with Germany convincing chip giant TSMC to open a fab in Dresden in 2027.
However, the chip landscape is complex, with thousands of semiconductors now used in some modern automobiles. As the previously little-known Nexperia shows, even a single deficiency can be harmful.
Sigrid de Vries, head of the European Automobile Manufacturers Association (ACEA), said in a recent press release that automakers “have taken steps over the past years to diversify supply chains,” but she added that the risks “cannot be reduced to zero.”
A battery strategy in progress
Unlike chips and rare earths, batteries represent a significant part of the electric vehicle value chain, about 30%, According to the European Association of Automotive Suppliers (CLEPA),
European car companies want to manufacture the batteries rather than source them elsewhere. They are currently dependent on exports from Korea and China, which have the majority of the market share.
Swedish battery maker Northvolt’s biggest European battery effort to date ended in spectacular failure as the company declared bankruptcy in 2024.
Other efforts now stand in Northvolt’s place, including Powerco from Volkswagen and Vercor, led by Renault. Whether they can reach the economies of scale needed to match the upfront costs remains a question, especially in a down market for electric vehicles.
Porsche recently announced it was abandoning its goal of battery production, saying it was no longer profitable in the current market.
The second question concerns the role of China, which has imposed new export restrictions on technology sharing and information on its most advanced battery technology.
Prosperity Driver Combustion Engine
Meanwhile, the risks to Europe’s auto industry have only become apparent, with Germany in particular struggling.
The German Association of the Automobile Industry (VDA) estimates that around 773,000 people were employed in the sector in 2024. This number, which had been decreasing in recent years, is now decreasing rapidly.
according to a new estimate51,500 jobs disappear in the auto industry between summer 2024 and summer 2025. This is close to the 61,000 jobs that disappeared in the entire six years before that.
Although these cuts are likely to occur over several years, the industry’s problems are already affecting cities and homes. Ingolstadt, home of Audi, is trying to close a budget gap of up to €80 million ($92.9 million) after corporate taxes fell well short of expectations, a direct result of the Volkswagen-owned carmaker’s troubles.
The Association of Automotive Suppliers predicted in September that 23% of EU value creation per car could shift elsewhere by 2030 if nothing changed.
Reason for optimism?
Battery projects are moving forward. Volkswagen is pushing ahead with its first gigafactory in Salzgitter, Germany, as is the Renault-led Vercor battery alliance, which is building a similar production hall in Dunkirk, France.
New technology and more efficient recycling could reduce the amount of rare-earth magnet imports needed for electric vehicles. In Friedrichshafen, ZF has also developed an electric motor that does not require rare-earth metals by using electromagnetism instead of permanent magnets.
A new line of electric vehicles could trigger sluggish buying across the market. BMW and Mercedes received positive reviews for new electric SUV models. Volkswagen has promised to finally bring its multi-brand scale to market in 2026 with the release of four new models of small, urban electric cars in the 25,000-euro range.
Meanwhile, the sustainability of Chinese competitors remains an open question. Chinese overinvestment has notoriously caused bubbles in the past. Beijing is already trying to control growing competition among carmakers, which it fears could do more harm than good.
Still, Europe will have to develop more future technology if it wants to successfully reduce dependence, Herrmann says, and he is “very optimistic” that Europe’s auto industry “will not go under.”
“It will have to go through a fundamental crisis, but at the end of the day I hope it will emerge stronger,” he said.
Edited by: Uwe Hessler