Europe’s Auto Industry Is Running Out of Road

Europe’s automotive industry enters December 2025 with an uncomfortable realisation: the continent’s most important manufacturing sector is no longer merely “transitioning”, it is contracting. The warning signs have been accumulating for years, but the latest figures confirm a structural shift that policymakers have been reluctant to acknowledge.

Vehicle production in the EU has fallen from roughly 16 million units in 2018 to just over 11 million last year. Exports are down, investment is wobbling, and new-car registrations have stagnated. Jobs across the manufacturing supply chain have shrunk markedly since 2019, particularly in components and assembly, the very activities that anchor entire regional economies. Europe’s industrial heartlands, from northern France to Slovakia’s manufacturing corridor, can no longer assume that automotive employment is the indestructible backbone it once was.

Blaming electrification alone is too convenient. Electrification is the direction of travel worldwide; China, Korea and increasingly the US are not hesitating. The real problem is that Europe has attempted to make a once-in-a-century industrial shift without a cohesive strategy to manage its consequences. The result is a sector squeezed from both ends: rising regulatory expectations at home and fierce competition abroad.

Nowhere is this tension more visible than in the debate over Europe’s 2035 phase-out of internal combustion engine sales. The European Commission’s decision to consider delaying its long-trailed Automotive Package signals hesitation at the very moment clarity is needed. Several governments, most notably Germany’s, are pressing for continued room for hybrids and high-efficiency combustion engines. Industry leaders, including those at Stellantis and Renault, warn that without flexibility, production declines could become irreversible.

But treating the 2035 deadline as the villain risks missing the deeper story. Europe’s vulnerability lies not in ambition, but in execution. Chinese manufacturers are now launching full line-ups in Germany, offering well-equipped EVs at prices European brands struggle to match.

Meanwhile, utilisation at several European plants languishes far below sustainable levels. Analysts estimate that multiple factories may face closure by the end of the decade unless volumes rebound, a scenario that no amount of rhetoric about “sovereignty” can mask.

What Europe needs is not a retreat from decarbonisation, but an industrial policy capable of supporting it. The continent still has world-class engineering talent, strong tier-one suppliers and advanced research ecosystems. What it lacks is a unified plan to prevent the hollowing-out of this base during the transition.

Three priorities stand out.

First, Europe must stimulate demand for cleaner vehicles rather than relying solely on regulation to force supply. Well-designed scrappage schemes, particularly for ageing small cars, could lift mass-market EV adoption and keep production volumes in Europe anchored.

Second, policymakers must address the uncomfortable truth that Europe has neglected the affordable-vehicle segment, the very segment in which Chinese brands excel. Supporting European-made compact EV platforms is essential not only for competitiveness but for social fairness.

Third, Europe should accelerate localisation of strategic components, from batteries to power electronics. Without this, the value chain, and its high-skilled jobs, will continue drifting abroad.

This is a moment of reckoning for Europe’s automotive sector. The choice is not between protecting legacy jobs and embracing a green future. The choice is whether Europe shapes the transition or becomes shaped by forces beyond its control. A decisive, pragmatic strategy could allow the industry to emerge leaner, greener and more resilient. Hesitation, by contrast, risks turning a temporary disruption into a permanent decline.

Europe has been the global cradle of the automotive age. Whether it remains a central player in the mobility era to come will depend on the decisions taken now, not in 2035.