Where Is European Car Manufacturing Headed?

This question is being asked with increasing frequency, especially when following the news, which often highlights the challenges facing European car manufacturers or managerial and operational issues within the industry. What we know for sure is that Europe’s largest carmakers, such as the Volkswagen Group (VAG) and Stellantis, are grappling with numerous problems. Even Renault, while appearing to manage market and corporate difficulties better, is not entirely unscathed by the current turbulence.

Author: Szilárd Szélpál

The Volkswagen Group, for instance, faces multiple issues that are now well-documented. These include anticipated and ongoing factory closures in Europe and globally, layoffs affecting European employees, particularly in Germany, poor marketing and commercial decisions, overlapping product lines, overly ambitious brand positioning, missed opportunities in innovation, and perhaps most notably, falling behind in the high-tech revolution.

Stellantis, meanwhile, is in no more favorable position. Its divisions across multiple continents have conflicting development and market strategies that the management has failed to reconcile effectively. The situation culminated in the departure of CEO Carlos Tavares, marking a critical juncture for the company. Stellantis’ predicament is fascinating given its diverse portfolio of brands and niche models, which, with proper management, could leverage the company’s history and competitive advantages.

Having extricated itself from its decade-long partnership with Nissan, Renault is striving to regain stability. Winning “Car of the Year” awards in consecutive years (2024 and 2025) has bolstered its position. However, its limited presence in global markets and the burdens imposed by French state regulations continue to pose significant challenges as market opportunities shrink.

All these factors beg the question: Is car manufacturing in Europe in crisis? Have we forgotten how to build cars or implement proper innovations and developments? Or are these challenges symptoms of a more complex problem with root causes outside the automotive sector? These questions merit deep consideration, as they could reveal broader systemic issues influencing the entire European economy.

What Can We Learn from This Year’s Brussels Auto Show?

This year’s Brussels Auto Show offered many insights despite notable absences such as Volvo/Polestar and Jaguar-Land Rover. In their place, a record number of exhibitors participated, including a strong showing from Chinese manufacturers who displayed their products and demonstrated their growing dealership networks and market readiness. The event highlighted that European consumers still value such large-scale exhibitions, which provide an excellent opportunity for potential buyers to compare vehicles and make informed decisions on future purchases.

With the closure of Europe’s largest auto shows in Geneva and Frankfurt due to financial and other challenges, the remaining exhibitions in Brussels and Paris will likely gain prominence. However, it became apparent that brands that skipped the event would face long-term consequences. The question is: what exactly will they be up against?

The rise of Chinese car manufacturing over the past decade is a significant trend. As the world’s largest auto market, Chinese consumers increasingly demand affordable, software-supported, “smart” vehicles. This trend reflects the cultural preference in East Asian countries for complex, multifunctional electronic devices with robust software ecosystems. The rapid development of China’s information and communication technology sector—led by companies like Huawei and Xiaomi—has already demonstrated that this demand extends beyond smartphones and consumer electronics.

This phenomenon mirrors what happened in Japan decades ago when the boom in the Japanese electronics industry paved the way for the country’s automotive success. Similarly, China’s thriving tech industry is laying the foundation for its dominance in the global auto market, signaling a shift that traditional manufacturers can no longer ignore.

The Role of Electronics and Connectivity in Revolutionizing the Global Automotive Industry

Panasonic, Sony, Sanyo, and Toshiba revolutionized the electronics industry, particularly in office and communication technology. This innovation laid the foundation for Japan’s automotive sector to expand globally. Honda and Toyota, for example, recognized early on that motorsport was an excellent platform for establishing their brands in markets where they previously had no substantial presence, such as Europe and the United States.

China has followed a similar path, albeit with a more modern twist. The advent of the internet and the proliferation of globally interconnected, cloud-controlled mobile devices and applications have propelled a much more advanced phase of electronic development. A key component of this advancement is the rise and innovation of electric vehicles. However, it would be naive to believe that environmental concerns were the primary driver of China’s transition to electric cars. While such concerns—like addressing the severe air pollution in cities like Beijing and Shanghai—did play a role, the true motivation lies in connectivity and digital integration.

As all electronic devices—from household appliances to personal gadgets—become controllable from a single smartphone app, it is inevitable that vehicles, too, must evolve beyond being purely mechanical masterpieces. They must adapt to changing consumer expectations and technological advancements. Chinese leadership quickly recognized the consumer benefits of this shift and the state and national security advantages it offered. The ability to track, monitor, and profile users becomes far more effective with interconnected electronic devices than traditional methods requiring significant human resources.

Across the Pacific, Tesla also capitalized on these developments, establishing a foothold in a niche market. Tesla’s innovations forced the traditionally conservative U.S. federal government and Detroit automakers to pivot toward mass electric vehicle development. Beyond environmental benefits, these changes were crucial for ensuring America’s national security and technological sovereignty.

Ultimately, both China and the United States demonstrate that the future of the automotive industry is deeply intertwined with advancements in electronics, connectivity, and the broader digital ecosystem.

Has Europe Missed the Global High-Tech Revolution?

The question of Europe’s future in the high-tech and automotive industries has become increasingly pressing. While Europe has recognized the environmental benefits of electric vehicles compared to traditional internal combustion engines, it has largely overlooked the critical role software development plays in shaping the future of the automotive industry. The next generation of vehicle manufacturing will be driven not by mechanical expertise but by advancements in software and digital integration.

This oversight is not unprecedented. In the 1990s and early 2000s, Europe was a global leader in mobile communication technology, with companies like Ericsson, Alcatel, and Nokia at the forefront. Today, Europe has no significant mobile device manufacturers, as the market is dominated by North American and Asian—primarily Chinese—companies. This trend extends to software development, where Europe lacks global tech giants like Facebook, Apple, Google, or Microsoft in the West, or Huawei and Xiaomi in the East. These companies are hardware manufacturers and software developers, shaping industries from consumer electronics to cloud computing.

Europe’s challenges are particularly stark in satellite and internet technology. While American companies like SpaceX with its Starlink network and Chinese firms deploying hundreds of satellites annually dominate the market, Europe lags far behind. Starlink currently operates approximately 7,000 low-earth orbit satellites, while China’s Qianfan aims to deploy 15,000 small satellites by the end of the decade. In comparison, Europe’s Galileo program operates just 25 large satellites in higher orbits, complemented by the French company Eutelsat and its subsidiary OneWeb, which manages 542 small satellites.

The European Space Agency (ESA) primarily focuses on scientific research, leaving strategic sectors like the military, information-communication technology, and other sovereignty-enhancing high-tech industries underdeveloped. Unlike the U.S. and China, which use their satellite networks for civilian and strategic purposes, Europe has no comparable initiatives to establish global dominance or technological independence in space-based industries.

The absence of European giants in global internet technology, software development, and high-tech sectors highlights a deeper issue: the world has outpaced Europe in these critical fields. The U.S., China, and Japan fiercely compete in these industries, shaping global policies and forcing others to follow their lead. However, Europe remains a bystander, unable to assert itself in the digital and technological revolution defining the 21st century.

Is Europe Lagging in the Automotive Revolution?

While grappling with significant challenges, Europe’s automotive industry appears to have focused primarily on meeting stricter environmental standards and global climate protection goals. However, it has neglected to adequately prepare for the shift to modern information and communication technologies (ICT), which are now central to the future of automotive manufacturing. This oversight has made the transition to electric vehicles more complicated than needed.

European manufacturers, such as Stellantis and the Volkswagen Group, have demonstrated their ability to develop robust electric platforms and design a range of vehicles under various brands. The electric powertrain itself posed no significant technical hurdles, as engineers had prior, albeit limited, experience with the technology. However, the real challenge lies in software development, Over-the-Air (OTA) updates, cloud-based services, and the satellite internet systems that support these technologies.

Consumer expectations have also shifted dramatically, creating another layer of complexity. Tesla and Chinese automakers have revolutionized sales models by simplifying vehicle offerings, enabling online ordering and home delivery, and focusing on all-inclusive configurations with optional OTA-activated features. Today’s buyers, well-informed by automotive YouTubers and online reviews, value convenience over customization. They prefer pre-configured vehicles with most features, reserving their choices for exterior and interior colors. This approach saves time for consumers and reduces production costs for manufacturers—an evident “win-win” scenario.

Yet, European manufacturers remain attached to offering extensive customization options and intricate equipment lists. This approach is increasingly seen as outdated, as evidenced by Tesla’s enduring success and the aggressive market penetration of Chinese automakers. Simplified production processes and streamlined offerings have proven the way forward in modern vehicle manufacturing.

European automakers can still manage issues like supply chain disruptions and material quality despite these strategic missteps, as demonstrated at the Brussels Auto Show. However, what stood out most at the event was the strong interest in Chinese vehicles. The popularity of Chinese brands was evident not only in the large crowds of potential buyers but also in the feedback from sales representatives. This trend will likely strengthen further, especially with the start of production at BYD’s Szeged facility and Chery’s preparation of the former Nissan plant in Barcelona for its Omoda and Jaecoo models.

The automotive industry is clearly at a crossroads. The growing influence of Chinese automakers and the shifting dynamics of consumer expectations signal that European manufacturers must adapt quickly. The global automotive landscape is poised for even more remarkable transformation as new U.S. trade and industrial policies emerge under a forthcoming administration. It will be fascinating to watch how these factors shape the industry’s future.

Cover photo credit: Szilárd Szélpál