Plant closures and layoffs expose a perfect storm fueled by the shift away from Russian energy, green policies, and fierce global competition

European carmakers are facing one of the toughest crises in their history. Plant closures, layoffs, and shrinking profits have become increasingly common as Chinese electric vehicle manufacturers continue to expand their global footprint.

German luxury carmaker Porsche has become the latest victim. The company is expected to cut an additional 4,000 jobs, the Handelsblatt newspaper reported on Monday. In March, the sports car manufacturer reported a 93% drop in operating profits following a costly pivot away from its long-term EV strategy.

But these setbacks are only part of the story. Behind them lies a combination of soaring energy costs, mounting regulatory pressure, shifting supply chains, and intensifying international competition that is reshaping one of the region's most important industries.

How bad is the crisis?

Since the Covid-19 pandemic and the global semiconductor shortage, European carmakers have been battered by weakening consumer demand and persistently high production costs, largely driven by elevated energy prices.

The slump is evident in sales. Across the EU, new car registrations in 2025 remained nearly 30% below 2019 levels, while the UK market also failed to recover to its pre-pandemic performance.

At the same time, expensive energy has left European manufacturers at a competitive disadvantage compared with many rivals in Asia and North America.

The strain is already triggering deep restructuring across the industry. Volkswagen, Mercedes-Benz, and BMW have announced job cuts and cost-cutting measures; Stellantis has reduced output at several European plants, particularly in Italy; Renault is continuing its restructuring in France; and the UK has seen factory closures as manufacturers struggle to contain rising costs.

Which countries have been hardest hit?

The crisis is weighing most heavily on countries where the automotive industry is a major source of jobs and economic growth. In 2019, the sector supported around 13.8 million jobs - 6.1% of total EU employment - and accounted for more than 7% of the bloc's GDP.

Germany has been hit hardest, with the industry shedding around 125,000 jobs since 2019. In France, automotive employment has fallen by roughly a third since 2010, dropping from about 425,000 to fewer than 290,000 workers. In Italy, the wider manufacturing sector has lost more than 103,000 jobs since 2008, while a further 12,650 automotive positions are considered at risk.

Spain also remains heavily reliant on vehicle exports, while the Czech Republic, Slovakia, and Hungary are even more exposed, with much of their industrial output dependent on foreign-owned carmakers. As a result, even relatively small production cuts can have an outsized impact on jobs and regional economies.

Outside the EU, the UK also remains vulnerable. Although its automotive sector is smaller, it still supports around 200,000 manufacturing jobs and some 800,000 positions across the wider industry.

How much of the problem stems from energy prices?

Energy costs have become one of the key structural pressures on Europe's auto industry. After the disruption of traditional energy flows, the shift away from relatively cheap Russian pipeline gas has increased reliance on more expensive alternatives, including liquefied natural gas (LNG) imports from the US. For an energy-intensive sector such as automotive production - where steel, aluminium, chemicals, and battery materials are essential inputs - this has raised costs across the entire value chain.

The impact extends beyond final assembly plants. Suppliers of metals, plastics, and battery cells have also faced higher input costs, feeding through into vehicle prices and squeezing manufacturers' margins. This is particularly significant for electric vehicles, which depend on energy-intensive battery production and raw material processing.

Combined with competition from regions with lower energy costs, this has eroded one of Europe's traditional advantages: cheap and stable industrial energy. As a result, energy has shifted from a competitive strength to a persistent headwind for European automakers.

Why are European carmakers losing ground to China?

Europe's weakening position in the global auto market is increasingly linked to the rise of China as the leading EV powerhouse. Chinese manufacturers have scaled up production rapidly, supported by fully integrated domestic battery supply chains - from raw materials processing to cell manufacturing - giving them a structural cost advantage over European rivals.

A vast domestic market also allows Chinese firms to produce at far larger volumes, lowering unit costs and speeding up innovation. By contrast, Europe's market is fragmented across multiple countries and regulatory systems.

European automakers also face higher production costs, particularly for energy and labor, alongside heavier regulatory requirements linked to emissions targets and industrial policy. According to the International Energy Agency, China produced 12.4 million electric cars in 2024, compared with 2.4 million in the EU and around 80,000 in the UK - roughly five times the combined European output.

The green transition impact

Under EU climate policy, automakers must meet increasingly strict CO emissions targets, while the bloc plans to phase out new petrol and diesel cars by 2035. This has forced manufacturers to invest heavily in EV platforms, battery plants, software, and factory upgrades well before these investments generate returns. The UK is following a similar path through its Zero Emission Vehicle (ZEV) Mandate, requiring rising EV sales ahead of a 2030 ban on new internal combustion engine vehicles.

The pressure has been amplified by slower-than-expected EV adoption across Europe. As demand lags behind targets, automakers are caught between costly EV investments and continued reliance on petrol and diesel models to sustain profits.

Several carmakers warn that both EU rules and the UK's ZEV targets risk moving faster than consumer demand. Critics say regulation has outpaced market readiness, while supporters argue that slowing the transition would leave Europe trailing in the global shift to clean mobility.

Why aren't Europeans buying new cars?

Years of high inflation have squeezed household budgets, making consumers more reluctant to make big-ticket purchases. Although the European Central Bank and the Bank of England have begun cutting interest rates, borrowing costs remain well above pre-2022 levels, keeping car loans and leasing expensive.

At the same time, new car prices have surged since the pandemic as higher production costs have been passed on to buyers, further eroding affordability.

The transition to electric vehicles has added another obstacle. While EV prices are gradually falling, they remain higher than comparable petrol and diesel models, and concerns over charging infrastructure, driving range, and resale values continue to dampen demand.

Government policy has also weighed on sales. Several countries have scaled back or scrapped EV subsidies amid budget pressures. Germany, Europe's largest car market, ended its purchase incentives in late 2023, contributing to a sharp decline in EV registrations.

What are European governments doing to tackle the crisis?

European governments are trying to support the auto industry without derailing the transition to cleaner transport, combining financial incentives, industrial investment, and more flexible climate rules.

The EU has invested in domestic EV and battery production, funding battery plants, critical raw materials, and charging infrastructure. It has also imposed tariffs on Chinese-made EVs over alleged unfair subsidies and relaxed CO compliance rules by giving automakers more time to meet emissions targets. The UK has retained its ZEV Mandate while easing some compliance requirements and pledging further investment in domestic battery production and EV supply chains.

What happens if Europe fails to reverse the trend?

With millions of jobs tied to the auto sector, a prolonged decline would extend far beyond factory gates, hitting suppliers, local economies, and entire industrial regions. Analysts warn that further shrinkage could reduce exports, deter investment, weaken one of Europe's key manufacturing sectors, and increase pressure on public finances.

The crisis also carries strategic risks. As China strengthens its lead in EVs and battery technology, Europe risks losing its automotive edge and becoming more dependent on imported vehicles, batteries, and critical technologies.

(RT.com)