Plant closings and layoffs reflect the perfect storm fueled by Russia’s shift away from energy, green policies and fierce global competition.
European carmakers are facing one of the most difficult crises in their history. Plant closings, layoffs, and declining profits have become increasingly common as Chinese electric car makers continue to expand their global reach.
German luxury car maker Porsche has become the latest victim. The company is expected to cut a further 4,000 jobs, Handelsblatt newspaper reported on Monday. In March, the sports car maker reported a 93% drop in operating profit following a costly pivot away from its long-term EV strategy.
But these obstacles are only part of the story. Behind them is a combination of rising energy costs, increasing regulatory pressure, changing supply chains, and intensifying global 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 automakers have been hit by weakening consumer demand and ongoing high production costs, stemming from high energy prices.
The collapse is seen in sales. In the European Union, new car registrations in 2025 remained around 30% below 2019 levels, while the UK market also failed to recover its pre-crisis performance.
At the same time, high energy costs have left European producers at a competitive disadvantage compared to many rivals in Asia and North America.
The problem is already causing a deep overhaul across the industry. Volkswagen, Mercedes-Benz, and BMW have announced job cuts and cost-cutting measures; Stellantis has reduced production in several European plants, especially in Italy; Renault continues its restructuring in France; and Britain has seen factory closures as manufacturers struggle to control rising costs.
Which countries are most affected?
The crisis weighs more on countries where the automobile industry is the main source of employment and economic growth. In 2019, the sector supported around 13.8 million jobs – 6.1% of total EU employment – and contributed more than 7% of the bloc’s GDP.
Germany has been the hardest hit, with the industry shedding about 125,000 jobs since 2019. In France, automotive employment has fallen by about a third since 2010, falling from about 425,000 to less than 290,000 workers. In Italy, the wider manufacturing sector has lost more than 103,000 jobs since 2008, with another 12,650 automotive jobs considered at risk.
Spain also remains highly dependent on car exports, while the Czech Republic, Slovakia and Hungary are more exposed, with much of their manufacturing output dependent on foreign-owned carmakers. Therefore, even a small reduction in production can have a significant impact on jobs and the regional economy.
Outside the EU, the UK also remains vulnerable. Although its auto sector is small, it still supports nearly 200,000 manufacturing jobs and another 800,000 jobs in the wider industry.
How much of the problem is due to energy prices?
Energy costs have been one of the main structural pressures on the European car industry. After the disruption of traditional energy flows, the shift away from cheap Russian pipeline gas has increased reliance on more expensive alternatives, including imports of liquefied natural gas (LNG) from America. For an energy-intensive sector such as car production – where steel, aluminium, chemicals and battery materials are key inputs – this has increased costs across the entire value chain.
The impact extends beyond the final assembly mechanics. Suppliers of metals, plastics, and battery cells have also faced higher import costs, driving up vehicle prices and squeezing manufacturers’ margins. This is particularly important for electric vehicles, which rely 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. Thus, energy has shifted from a competitive force to a continuing headwind for European automakers.
Why are European automakers losing ground to China?
Europe’s weakening position in the global car market is increasingly linked to China’s rise as a leading EV company. Chinese manufacturers have ramped up production rapidly, helped by integrated domestic battery supply chains – from raw material processing to cell manufacturing – giving them a structural advantage over European rivals.
A large domestic market also allows Chinese companies to produce in larger quantities, lower unit costs and speed up innovation. In contrast, the European market is fragmented into many countries and regulatory systems.
European car manufacturers also face high production costs, especially for energy and labour, as well as heavy regulatory requirements linked to production targets and industrial policy. According to the International Energy Agency, China will produce 12.4 million electric vehicles in 2024, compared to 2.4 million in the EU and around 80,000 in the UK – about five times the output of Europe combined.
Green transition effect
Under EU climate policy, automakers must meet strict CO₂ emissions targets, while the bloc plans to phase out new gasoline and diesel vehicles by 2035. This has forced manufacturers to invest heavily in EV platforms, battery systems, software, and factory upgrades before these investments can pay off. The UK is following a similar path through its Zero Emission Vehicle (ZEV) Mandate, which requires increased EV sales before a 2030 ban on new combustion engine vehicles.
The pressure has been intensified by slower-than-expected EV adoption across Europe. As demand lags behind targets, automakers are caught between expensive EV investments and continuing to rely on gasoline and diesel models to sustain profits.
Several car manufacturers warn that both the EU and ZEV legislation are aimed at the risk of moving faster than consumer demand. Critics say the regulation has outpaced the market’s readiness, while supporters argue that slowing the transition will leave Europe behind the global transition to clean mobility.
Why don’t Europeans buy 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 started to cut interest rates, borrowing costs remain above pre-2022 levels, making car loans and leases more expensive.
Meanwhile, new car prices have risen since the pandemic as higher production costs have been passed on to buyers, increasing affordability.
The transition to electric vehicles has added another hurdle. Although EV prices are gradually falling, they remain higher than comparable gasoline and diesel models, and concerns over charging infrastructure, vehicle variety, and sales values continue to dampen demand.
Government policy has also focused on sales. Several countries have reduced or eliminated EV subsidies amid budget pressures. Germany, Europe’s largest car market, ended its purchase incentives at the end of 2023, contributing to a sharp decline in EV registrations.
What are European governments doing to deal with the crisis?
European governments are trying to support the car industry without disrupting the transition to clean transport, combining financial incentives, industrial investment, and simpler climate rules.
The EU has invested in domestic EV and battery production, financing battery plants, key raw materials, and charging infrastructure. It has also imposed tariffs on Chinese-made EVs over alleged unfair subsidies and relaxed CO₂ 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 will happen if Europe fails to change that trend?
With millions of jobs tied to the auto industry, a long-term downturn would extend beyond the factory doors, hitting suppliers, the local economy, and entire industrial areas. Analysts warn that a further slowdown could reduce exports, hinder investment, weaken one of Europe’s main manufacturing sectors, and increase pressure on public finances.
The crisis also carries strategic risks. As China consolidates its leadership in EVs and battery technology, Europe risks losing its automotive edge and becoming increasingly dependent on imported vehicles, batteries and key technologies.
