This moment of change is critical: the automotive sector currently contributes €1,9 trillion to Europe’s gross value added (GVA), making up 8% of its GDP and supporting 5.5 million jobs. However, the rise of EVs brings new competition, supply chain challenges, and the need for significant investment in technology and infrastructure. McKinsey’s report outlines three possible scenarios for Europe’s automotive industry, showing just how much is at stake.
Disruption could cost Europe €400 billion in automotive value
In a disruptive scenario, Europe fails to adapt quickly enough to the new EV landscape. Emerging players, particularly from China, could seize market share by leveraging cost advantages, rapid production cycles, and dominance in battery supply chains.
If Europe’s domestic BEV market share falls to 45% by 2035 (from 60% in 2023), the consequences could be severe:
- Vehicle production would decline by 20–25%.
- Exports could fall by 40%, while imports rise by 1,2 million cars.
- Upstream GVA would drop by €400 billion.
This scenario underscores the risks if European automakers do not innovate or invest to maintain competitiveness in the global EV race.
Ambitious strategies could stabilise value and create new opportunities
In a more balanced scenario, Europe takes proactive steps to reduce losses and leverage emerging opportunities. While upstream GVA could decline by €130 billion, the continent could add €280 billion in downstream value through EV-related services and infrastructure.
Key measures for this scenario include:
- Expanding Europe’s battery production with 35 new gigafactories planned by 2035.
- Strengthening the region’s control over raw materials, including recycling and refining.
- Encouraging partnerships between traditional automakers and new EV players.
These efforts could help Europe maintain a competitive edge, stabilising its global automotive position and reducing reliance on external supply chains.
Full potential could unlock €300 billion in additional value
In the best-case scenario, Europe’s automotive sector fully capitalises on the shift to EVs, maintaining upstream GVA at €1,1 trillion while adding €300 billion in downstream value. This would require bold action across several areas:
- Retaining a 65% share of the domestic BEV market, similar to its current total market share.
- Scaling local production of EV components, including batteries and semiconductors.
- Developing digital and connected vehicle services such as autonomous driving and advanced infotainment systems.
This scenario would see Europe reaffirm its global leadership in automotive innovation while driving significant economic growth.
Challenges Europe must address to succeed
To thrive in the EV era, Europe must tackle several pressing issues. Productivity in European manufacturing has slowed significantly over the past decade, with hourly productivity growth plateauing compared to the 7% annual growth seen in China. Upskilling the workforce in areas like artificial intelligence and battery technology will be essential.
High energy costs also pose a challenge, with electricity prices in Europe averaging twice those in the United States. Expanding renewable energy sources and reducing costs are critical for maintaining competitiveness.
Finally, regulatory complexity has been a long-standing barrier. Simplifying permitting processes for EV infrastructure, such as charging stations, could accelerate progress and attract investment.
Downstream value offers a €1 trillion opportunity
The EV shift presents significant opportunities in downstream activities, which could reach €1 trillion in GVA by 2035. Key growth areas include:
- €70–€100 billion from installing and maintaining charging infrastructure.
- €30–€70 billion from digital and connected vehicle services.
- €15 billion from battery recycling, which could help source over half of key materials from recycled components.
These downstream activities not only support the EV transition but also create additional revenue streams for automakers and adjacent industries.
Europe’s automotive future depends on bold action
McKinsey’s findings make it clear: the stakes for Europe’s automotive industry are immense. Failure to act decisively could lead to a significant loss of value and influence in the global market. However, with the right investments, partnerships, and policies, Europe has the potential to emerge as a leader in the EV era.
By fostering collaboration across the industry, scaling domestic production of critical technologies, and streamlining regulations, Europe can secure its automotive future. The next decade will determine whether the continent capitalises on this transformative moment—or risks falling behind.
Source: McKinsey
