Europe is witnessing the dawn of a new era of geopolitical competition. Trade, technology and industrial capacity are being used more than ever before to enforce national power interests. Europe needs to quickly decide how to respond to these challenges. Volkswagen Group and Stellantis are the two largest car manufacturers in Europe. We are in fierce competition with each other. At the same time, we share a responsibility for Europe as an industrial powerhouse. The European car industry is an integral part of that, generating 8% of European GDP annually and employing 13 million people.
Our companies have always built cars by Europeans for Europeans. Around nine out of ten vehicles that we sell in the EU are also produced here. However, our European business faces competition from importers who operate under less stringent regulatory and social conditions as in the EU. At the same time, we are heavily exposed to the risks of international trade, as evidenced by the restrictions on rare earths seen last year, and the seemingly inexorable regionalization of trade.
Battery cells are the clearest illustration of Europe’s strategic dilemma. We are investing billions in our own European battery cell production. As Europeans, we need to master and manufacture this core technology ourselves across the entire value chain. At the same time, however, our European customers rightly expect us to provide electric vehicles that are as affordable as possible, a key condition for electric mobility to succeed. But the lower the price of a car, the greater the pressure to import the cheapest possible batteries for it.
There is therefore a conflict of objectives between short-term cost pressure, dependencies on third countries, and long-term strategic resilience. The right answer to this is a ‘Made in Europe’ strategy. It is based on two simple principles. First, anyone who sells vehicles to European customers should also manufacture them under similar conditions. This ensures fair competition. Secondly, European taxpayers' money should be used in a targeted manner to promote European production and attract investment to the EU.
This means creating ‘Made in Europe’ requirements for vehicles registered in the EU. However, these requirements must be carefully designed. We cannot build a protectionist fence around every workbench. Rather, it is a matter of building or strengthening our resilience in selected strategic components.
Specifically, ‘Made in Europe’ should be defined by reference to four categories of criteria for electric vehicles:
- vehicle production – including core manufacturing and assembly, research and development
- electric powertrain
- battery cells
- some important electronic components.
The targets for all these categories must be ambitious but realistic. Requirements for other drivetrains could follow.
Such policy is about setting smart incentives to sustainably grow European production. Every vehicle that meets the ‘Made in Europe’ criteria should receive a label and qualify for several benefits, for instance national purchase incentives or public procurement.
But vehicle-level purchase incentives alone are not enough: manufacturers that anchor the bulk of their production in Europe should get benefits that at least compensate the extra costs associated with ‘Made in EU’. The CO₂ regulation offers one strong lever for this. Any ‘Made in Europe’ electric vehicle should receive a CO₂ bonus. And if a manufacturer meets the ‘Made in Europe’ requirements for a large proportion of its fleet, such CO₂ bonus should even be recognised for all of its electric vehicles.
The automotive industry would thus have a positive incentive to maintain their production in the EU and to direct the billions of euros saved in penalties into vital increased investment at home.
This approach keeps the European market open, with fair competition, underpinning growth and employment, while keeping costs within manageable limits.
Localisation requirements alone will not solve all the industry’s challenges. ‘Made inEurope’ must be linked to an overarching industrial policy. This includes targeted production subsidies for European battery cells as well as purchase incentives for European electric vehicles.
In a world where others proudly defend their industries, Europe must urgently decide whether it wants to become a market for others or remain a maker and industrial power into the future. If done right, a ‘Made in Europe’ strategy can become a real European success story.