How Europe crashed its car industry Short-sighted policy gave China the upper hand

The Mirafiori car plant is the last surviving automobile factory in Turin, the historical engine of the Italian car industry. At Mirafiori’s post-war peak, Fiat manufactured one million vehicles a year, employing 60 000 people. For much of this past year, so few cars have been produced for Stellantis at the plant that one worker recently remarked that “Mirafiori has already been closed. It’s just that it reopens sometimes.”

It has been a terrible few months for most of the world’s once-leading automobile companies. In September, Volkswagen gave notice of plans to shut at least three of its 10 German factories and cut wages by 10%, breaching a 1994 agreement to protect jobs in its home country until at least 2029, prompting rolling two- and four-hour strikes. As production ground to a halt again at Mirafiori in November, Stellantis made public that the Vauxhall plant at Luton would close in April 2025, cancelling the company’s prior plan to produce Vivaro electric vans there. In the same month, Ford indicated it would cut 3,800 jobs in Europe by 2027, while Nissan announced 9,000 job losses and a 20% cut in worldwide production. A senior official at Nissan is reported to have said that the Japanese company has “12 or 14 months to survive”.

Beyond Germany, the crisis in the European automobile sector has been long in the making. Employment at Vauxhall Luton peaked in the Sixties, and the plant ceased producing cars in 2002, as did Ford Dagenham. Fiat’s five-storey Lingotto factory, which began mass auto production in Italy in 1923, closed in 1982. Today, the building serves as a leisure complex, hosting the largest roof garden in Europe. In 2011, Fiat threatened to close down the Mirafiori plant too unless workers voted for a restructuring plan. When, three years later, Fiat merged with Chrysler, it acquired a company that had been propped up with US federal government money since the 2008 crash. The subsequent union of Fiat Chrysler Automotive with Peugeot in 2021 to form Stellantis saw more than 10,000 job losses in Italy.

But the crisis also constitutes a more short-term failure around electric vehicles (EVs). It was only four years ago that Fiat Chrysler Automotive made a €700 million investment in producing an electric Fiat 500 at Mirafiori. Nissan’s Leaf was the best-selling EV of the 2010s, but since 2020 sales globally have slumped. Demand for Volkswagen’s ID 5 in the European EV market crashed by 28% in the first half of 2024 compared with the same period in 2023.

When, in 2019-20, European governments legislated for Net Zero 2050, they envisaged a rather different future. Of the 101.7 million barrels of oil the International Energy Agency (IEA) reports that the world consumed per day in 2023, more than 60 million was used for road transportation. Consequently, any serious move away from fossil fuels always required the automobile industry to be making and selling EVs at scale. It is scarcely surprising that Norway is the only European country that has made sustained progress in de-carbonising road transport because its hydrocarbon wealth provides the fiscal leeway to make EVs affordable for a reasonable proportion of citizens. In Sweden, where EV penetration was also comparatively high, growth slowed notably in 2024 after it had ended the purchase-incentives regime in late 2022.

By itself, the sluggish demand in much of Europe for EVs would constitute a big problem for an automobile sector required to stop selling ICE cars no later than 2035, and 2030 in the UK. But China’s astonishing rise over the past three years as an EV manufacturer means that even the slow electrification of road transportation in Europe is accelerating European de-industrialisation, rather than serving, as so many European politicians hoped, as an agent of re-industrialisation. China has by far the largest domestic EV market in the world. On the IEA’s figures, of the 25% increase in global EV sales in the first half of 2024 compared to the first half of 2023, nearly 80% came from China. By contrast, sales in Germany during the same period fell. Chinese producers are now ascendant in their own country, with the Shenzhen-headquartered company BYD alone taking 30% of the market. Meanwhile, Chinese exports have grown astonishingly rapidly, rising 1,600% from 2019 to mid-2024.

China’s productive success cannot be explained simply by the labour cost advantages of late industrial development. Tesla aside, Chinese cars are technologically superior because the Chinese government systematically worked for them to be. As an industrial strategy for high-tech manufacturing, Made in China 2025 and the Five-Year Plan for 2021-25 have been highly successful. The Chinese state financially supports not just domestic EV firms but all parts of the supply chain from metal mining and processing to battery production. In comparison, European political efforts were financially paltry and much more fragmented, leaving its manufacturers dependent on Chinese-dominated supply chains. Escaping this dependency is extremely difficult, not least since China’s 2020 Dual Circulation strategy was in part a project to entrench permanently Chinese firms into the high-value parts of supply chains and force foreign reliance on them. These companies also benefit from the Chinese state prioritising energy security and price over any political preference for one energy source over another substitutable for it. With coal still providing around 60% of China’s electricity and constituting more than 50% of the country’s overall energy consumption, China’s industrial energy costs are significantly lower than those in Europe, most of which is much more dependent on natural gas.

More than a coherent economic strategy to advance the existing European car industry, the tariffs on Chinese manufacturers provisionally imposed by the European Commission in July 2024, and made permanent in October, are a desperate political response to the crisis. When, in May 2024, the Biden Administration placed 100% tariffs on Chinese EVs entering the American market, Chinese manufacturers had barely any EV market share and no Chinese EV manufacturer has an operational plant for exports in either Mexico or Canada to access the United States-Mexico-Canada Agreement. The EU, by contrast, is already China’s largest export market, while BYD will begin producing EVs in Hungary in the second half of 2025 and Turkey — equivalent to the EU’s Single Market for export purposes via the country’s long-standing customs union with the EU — by the end of 2026.

For the German car industry and its present government, then, European protectionism is a strategic defeat, risking retaliatory action in the world’s largest car market in which until very recently German companies thrived. Even, as the China EV shock intensified, Volkswagen made more than half of its profits in 2023 in China. Quite simply, if Volkswagen cannot even try to compete in the Chinese market, it cannot remain a global auto player. In this sense, the European car crisis is a symptom of the much bigger story of historical European relative decline driven by the rise in Asian living standards under late industrialisation.

Ironically, the UK government has thus far adopted the free-trade-leaning approach the Scholz government would have done if Germany were not in the EU without the UK having domestically-owned manufacturers who compete in the Chinese market. But this openness to more Chinese exports is a nightmare for British-based car firms wishing to sell in the domestic market, especially when they already cannot meet the EV sales required under the Zero Emissions Vehicle (ZEV) mandate that subjects all companies selling in the UK to probably the most demanding regulatory framework anywhere in the world for ending ICE sales. The week before Stellantis announced the closure of Vauxhall Luton, representatives from the major car manufacturers met with then transport secretary Louise Haigh and business secretary Jonathan Reynolds pleading for more latitude. Finding none on offer, Nissan blasted the Government’s inertia. As the job losses at Luton materialised, Reynolds retreated, promising an urgent consultation on the toughening of the targets due to take effect in January. Since in 2025 the cheapest Chinese EVs yet – one from Leapmotor in which Stellantis has a 20% stake and the other BYD — will arrive in the UK market, it is hard to see how Keir Starmer’s government can possibly retain both the ZEV and openness to China without wrecking what remains of the British car industry. If one single dread consumes the Labour Cabinet, it must be the closure of Nissan’s Sunderland plant even as it was little more than a year ago that Nissan announced it would build three EV models at the north-east site, supported by £2 billion of support for investment from Rishi Sunak’s government.

Over in Italy, Giorgia Meloni never suffered from the illusion that Net Zero in general and EVs in particular would open a path to re-industrialisation for European economies. Immediately after taking office, Meloni stridently opposed the EU’s proposed ban on new ICE sales from 2035. Having found too few allies to stop the EU Council adopting the regulation in March 2023, she has continued to denounce the policy as “self-destructive” and promised Italian voters she will make Brussels “correct these choices”. With the likely arrival of the Christian Democrat Friedrich Merz in the Chancellery after the German general election on 23 February, she will find a powerful ally. Meloni has also been an arch pragmatist about the Chinese threat. Although she supported the Commission’s tariffs, she travelled to Beijing in July 2024 to reset relations after taking Italy out of the Belt and Road seven months earlier. At the top of her agenda is procuring Chinese investment in the Italian car industry, with negotiations in progress with the state-owned Chinese manufacturer Dongfeng Motor for a plant in Turin.

The production and consumption of cars have long marked decisive junctures in Western political history. When in 1908, Henry Ford made mass ownership of cars affordable with the Model T, he imagined he was saving American democracy from the perils of a bitter class divide around the automobile. When, in March 1943, workers at the Mirafiori plant in Turin walked out on strike, they began a labour revolt across the north of Italy that domestically undid Mussolini’s regime four months before the Allied landings in Sicily. Symbolically, cars represented historical progress conceived as individual and democratic freedom. For much of the 20th century, the commercial competition between car companies represented an epoch of competing Western visions of modernity. Inspired by Ford but not wishing to be American, Fiat offered the Lingotto factory on its opening in 1923 as the height of Italian avant-garde industrial modernism. Because the perception of national economic success required a large and competitive auto industry, car workers knew they could inflict such political pain that they had to be feared.

But this psycho-material history began in a geopolitical world where China was stuck in its century of humiliation. China’s emergence as a manufacturing superpower leaves nothing of that old world untouched. Without its rapid economic development over the past 30 years, driving carbon emissions and accelerating oil demand after conventional oil production stagnated from 2005, the energy transition would have seemed less of an imperative.

By committing to end the energy-basis for western Europe’s early historical experience of industrial modernity without a viable strategy for realising a different future, European governments only accelerated the long forces of de-industrialisation. Now, China has claimed the most potent symbol of the energy transition for its own project of modernity. As the meaning of this change begins to be comprehended, democratic politics in Europe will necessarily enter a new era of tumult.

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Helen Thompson is Professor of Political Economy at the University of Cambridge and co-presenter of UnHerd’s These Times.

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