Europe's Automotive Outlook for 2025

It’s no secret that the past 12 months have been challenging for Europe’s automotive industry. European OEMs stocks are down 20-40% year over year and are facing increasing challenges from short-term overinvestment in EVs, new entrants from China, and fewer vehicle deliveries than in 2023.

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Not only does the industry suffer at the top, but lower profit margins have also meant less business for the entire automotive supplier network. Combined, more than 7% of the entire workforce in Europe is employed by the automotive industry one way or another, meaning that a small decline at the top, has large consequences on the bottom.

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A look into what happened in 2024.

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To better understand what to expect in 2025, we first have to look back at 2024.

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From CLEPA’s data digest report (The European Association of Automotive Suppliers):

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• In Europe, vehicle production was 20% lower than pre-pandemic levels. High energy prices and inflation overall since 2020 didn’t help either, and further made competition hard against main competitors China and the US.

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• The consequences are severe: A record 54,000 jobs cuts were announced in the automotive supply industry in 2024 alone. Investment in electric vehicle projects, such as in electro-mobility components or batteries has plummeted, with many being either postponed, downsized or cancelled entirely. Additionally, over two-thirds of automotive suppliers report margins below the level needed to sustain crucial investments in new technologies and production modernisation.

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• The ongoing shift to electrification is adding pressure. A PwC Strategy& study released in 2021, looking specifically at EV employment impact in the automotive supply industry, had up to 500,000 job losses in the next 15 years linked to the transition, despite the potential creation of 226,000 new positions.

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• In 2024, the EU was likely to have produced roughly 700,000 fewer vehicles than in 2023 and 3.2 million fewer vehicles compared to pre-pandemic levels, according to GlobalData (LMCA)’s November forecast.
• The anticipated growth in battery electric vehicle production for 2024 did not materialise. Production slightly declined compared to 2023. However, GlobalData (LMCA) expects a rebound for 2025, with electric vehicles—including battery electric vehicles and plug-in hybrid electric vehicles—forecast to account for up to 27% of total vehicle production, up from 20% in 2024.

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• According to the latest survey by McKinsey and CLEPA, since 2020, only about a third of automotive suppliers have maintained healthy profit levels. Even more concerning, 38% of respondents expect negative or marginal EBIT in 2024, underscoring the persisting financial strain on the industry.

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• Profitability challenges continued to weigh heavily on the sector in 2024, with 65% of automotive suppliers struggling to maintain profit margins above 5% — the minimum threshold needed for sustainable investments in future technologies.

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• After years of steady growth, investments in electric vehicle components across the EU have sharply declined in 2024. From 2020 to 2022, direct investments in EV components surged, with capital investment peaking at an estimated €18.15 billion in 2022.

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• While EV-related investments remained strong in 2023, they have plummeted in 2024, falling to €5.64 billion — the lowest level since 2019.

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• A key factor behind this downturn is weaker-than-expected demand for electric vehicles, which has had a significant impact on investment decisions. Moreover, at least eight companies have either postponed or abandoned European EV battery projects in 2024.

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Going into 2025

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Even if 2024 was challenging, there is reason to believe 2025 will look better.

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We have complied our thoughts on things that need to happen for Europe’s automotive industry to get back to normal levels in 2025 and beyond.

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Necessary cuts: Europe’s automotive industry has been over-recruiting in the past 5-10 years and created unnecessary complexity, especially within software. The industry will most likely need to redefine their software strategy and make cost-saving cuts even if it hurts in the short-term.

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Cost efficient human resources: Touching upon the previous point of necessary cuts: Projects still need to be delivered, and personel cuts will create gaps that need to be filled. This will need to to be done with a mix that consist all the more with cost-efficient human resources, from best-cost countries outside of Europe.

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Fund new cutting-edge R&D Projects: With announcements like BYD wanting to release full driving for free with all their compatible models and Tesla launching their robotaxi service, European automakers need to get up to speed and produce new generation technology that rivals that of US and China.

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Make software an advantage: The hardest thing European carmakers can get right is software. It’s causing production delays, recalls, and headache. Automakers need to become software and make it a part of their DNA, instead of outsourcing it or buying it in pre-made components.

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Government incentives: It’s no secret that China’s automakers have received very large subsidies to develop their automotive sector in recent years, and therefore been able to build out its ecosystem and offer vehicles at far lower prices than their European counterparts. To compete, EU probably needs to offer new incentives for the industry to keep it competitive.

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There’s, of course, a lot more to talk about, but starting with these should give the European industry a better way forward in 2025 and beyond.

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Conclusion

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Despite the challenges of 2024, Europe’s automotive industry isn’t out of the race yet. Strategic cost-cutting, smarter software integration, and renewed investment in R&D can help turn things around. With the right moves and potential government support, 2025 could mark the beginning of a more competitive and resilient European auto sector.

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