The Electric Revolution: Reshaping Europe’s Automotive Landscape
The shift to electric vehicles (EVs) is rapidly transforming the global automotive industry, presenting both exciting opportunities and significant challenges for Europe’s economy. For decades, the automotive sector has been a cornerstone of European economic strength. But as the world embraces electric mobility, how can Europe’s auto industry not just survive, but thrive?
The Current State of Play
In 2023, the European automotive industry generated approximately $1.9 trillion in gross value added (GVA) and was responsible for innovative vehicle design and engineering. The industry is also a major employer, directly supporting around 5.5 million jobs across the value chain and investing heavily in research and development.
However, this transition isn’t without its hurdles. McKinsey research indicates that current trends could result in a $400 billion decline in European production value added over the next decade.
The McKinsey Electric-Vehicle Index
The global EV market is experiencing strong growth, led by China. Europe’s growth rate, while still positive, has decelerated recently. In 2023, China sold over eight million EVs, a 37% year-over-year increase. Meanwhile, Europe’s sales growth rate was 16%, with over three million EVs sold, and the United States saw a robust 48% growth rate, reaching nearly 1.5 million EV sales.
Key Insights into Europe’s EV Transition
The transition to EVs is a major undertaking, and the European automotive landscape is undergoing significant changes, including:
- Governments are setting deadlines to phase out new ICE vehicle sales. Europe’s target is 2035.
- Consumer preferences are shifting, with growing desire for vehicle connectivity and new forms of mobility.
- Value chains are changing; EVs incorporate more non-traditional car components. For example, batteries and semiconductors.
- Incumbent OEMs now face intense competition from innovative new companies.
Three Potential Scenarios for the Future
To assess the impact of the EV transition on Europe’s automotive industry and its broader economy, McKinsey has modeled three potential scenarios for 2035:
- Disruptive Scenario: New EV companies reshape the market, potentially leading to a GVA decline. This scenario anticipates a drop in the European OEMs’ domestic BEV market share, which may ultimately result in a loss of GVA.
- Ambitious-Plans Scenario: European industry leaders execute current plans to support the domestic automotive sector. By investing strategically, Europe can mitigate the decline in GVA.
- Full-Potential Scenario: European OEMs maximize value creation, maintaining upstream GVA while capturing additional downstream value from new EV-related services.
Strategies for Success
To thrive in the EV era, Europe needs to pursue innovative strategies, including:
- Strengthening Industry Collaboration: This involves building coalitions and alliances within the industry
- Company-Wide Initiatives: Addressing supply chain vulnerabilities and promoting workforce development
- Developing Effective Policies: Expanding renewable energy sources, reducing regulatory complexity, and investing in necessary infrastructure
The Road Ahead
The economic potential of EVs for Europe is immense. By adopting bold strategies and focusing on collaboration, European OEMs can secure their position as global leaders while supporting overall economic growth. The transition will require significant investment and strategic partnerships throughout the automotive value chain.
