What will make Europe's automotive sector more competitive?

Europe’s car industry is under pressure. European Union passenger-car output is down 19% since 2019, Chinese-built cars accounted for over 20% of EU electric vehicle (EV) sales in 2026 and EU exports to the United States have fallen by a quarter since 2023. The EU's answer, from the 2025 Automotive Action Plan to the 2026 Industrial Accelerator Act, has been to shield domestic carmakers with countervailing duties, 'Made in EU' content requirements, conditions on Chinese investment and a weakened 2035 CO₂ target.

Our new paper argues that this approach is incomplete. The EU automotive sector ran a trade surplus of €76 billion in 2025, its carmakers remain profitable despite margins falling from their 2023 records and firms – European and foreign – invested €3 billion per quarter in European plants throughout 2025. The real risk is not collapse but the erosion of export markets, technological leadership and supplier networks. A shield addresses none of this, nor does the industry's own post-pandemic bet on premium combustion models over affordable EVs, a market segment left to Chinese automakers.

Worse, a shield represents poor value for the consumer and taxpayer money financing it. An EU-origin rule on battery cells would add €2,100 per EV, hitting entry-level cars the hardest. This disadvantages exporters and would slow the decarbonisation of Europe’s domestic fleet. 

What would a better strategy look like? The EU should simplify domestic policy, for example by replacing local-content rules with the Net-Zero Industry Act’s resilience criteria, invest in infrastructure and skills and ensure adjustment support is temporary and tied to affordable-EV progress. Inward investment should be treated as a catch-up opportunity, not a challenge. On China, the EU should pursue a time-limited agreement combining export quotas on EVs and hybrids under foreign direct investment principles. Failing that, the EU should act alone: pairing existing duties with a WTO-consistent safeguard on hybrids and be prepared to respond firmly to any economic coercion.

Stay tuned for the Policy Brief, 'The European Union’s automotive sector needs a plan, not undue protection', by Benjamin Bjerkan-Wade, Ignacio García Bercero, Marie Jugé, Ugnė Keliauskaitė, Antoine Mathieu Collin, Ben McWilliams and Simone Tagliapietra