Washington [US], July 20: European policymakers have watched Chinese carmakers roll in like a slow but unstoppable tide over the past few years: affordable, polished and threatening one of the continent's proudest industrial legacies. Many have warned about the dismantling of their automotive prides following the new China shock.
A crown jewel of Europe's industrial output, the automotive sector represents directly and indirectly a total of more than 13 million jobs in the EU.
It was no accident that electric vehicles became the first major flashpoint that rocked the trade boat between Beijing and Brussels: the EU slapped tariffs on Chinese-made EVs last year, so China hit back at European cognac, pork and dairy.
But the obituaries may have been written too soon. A growing number of industry insiders said European brands could pull level with their Chinese rivals in cost, some predicting parity could come as soon as 2028 or 2029.
Their careful optimism came hedged with caveats, but the gap that once looked fatal might finally be beginning to close.
For Harald Hendrikse, European head of autos research at Citi, who proposed the 2028 to 2029 time frame in a May note, reaching it rested on two pillars: the correct implementation of the "Made in EU" requirements in the proposed Industrial Accelerator Act (IAA), and continued European access to Chinese technology and know-how.
"The most important thing is the fact that the Chinese are completely open, the Chinese industry is completely open to working with Western manufacturers, which means that basically, even relatively new Chinese technology is coming very quickly to Europe," Hendrikse said.
European original equipment manufacturers (OEMs) have three ways in.
They can source designs straight from Chinese partners, like Stellantis with Leapmotor and Renault with Geely. They can also develop models directly in China, as Renault did with its electric Twingo.
The third way is tapping the "off-the-shelf" components of China's mature EV supply chain and flipping through a catalogue of ready-made parts instead of developing their own. It was also clear that Brussels would use policy weapons to force Chinese OEMs to assemble in Europe for the European market, Hendrikse said, meaning Chinese carmakers would soon have the same disadvantages of producing in Europe, including high energy and labour costs.
The proposed IAA, with its "made in Europe" rule mandating vehicles be made with 70 per cent local components to qualify for subsidies, will also give European OEMs a boost if implemented well. Chinese OEMs will need to re-engineer their cars to use European parts or bring their much cheaper supply chain to Europe. Either way, European OEMs will benefit, he said. While Chinese carmakers' costs are likely to rise as a result of the EU regulations, their European rivals are cutting capacity, lowering fixed costs and increasing their competitiveness, according to Hendrikse.
Volkswagen Group announced in March that it will cut 50,000 jobs in Germany by 2030 across the group, including at Porsche and Audi.
Renault's China CEO Soh Weiming agreed that European brands could manage to close the cost gap, adding that the natural course of technological advancement could also offer them an opportunity to draw level with their Chinese peers.
Advancement follows an S-curve, Soh told the South China Morning Post, adding that as companies moved higher up the curve, their pace of innovation would slow, giving competitors a chance to catch up.
Soh also said that Renault would continue to explore this designed in China and made in Europe structure - first implemented for its electric Twingo - for future models, adding that he believed other European brands would quickly follow suit.
Chinese brands also face their own challenges at home. As Beijing gradually decreased the amount of money it pumped into the sector, Chinese OEMs would fight for resources in the domestic market, which would force them to focus more on profitability, according to Beatrix Keim, director of Centre Automotive Research, a German automotive think tank.
"They're crushing themselves. They are working against zero or negative profitability," she said. While many observers have pointed worriedly to the rapid rise in Chinese EV exports since the start of the year, driven by falling domestic sales after consumer incentives were cut, Keim said the exports were unlikely to relieve Chinese OEMs of the pressure they faced at home.
If the mood of European OEMs in 2022 and 2023 was one of panic, it has since improved and they quickly adjusted and began to catch up, according to Keim.
The new EV models shown by Volkswagen during the Beijing car show in April are very different from the previous ones found in Europe: more likeable and similar to model designs by Chinese brands with more elaborate functions, she said, noting that the models appeared to be "much more complete".
European carmakers have been accelerating their EV innovation efforts. The top five most innovative EV makers in 2025 were BYD, BMW, Renault, Mercedes and Geely, according to a report published in May by the German research institute Centre of Automotive Management.
The centre assesses the innovation strength of the world's 35 leading automotive groups on the basis of 874 individually rated series innovations from 2020 to 2025.
Of all the weighted EV-innovation activity the centre measured, Chinese OEMs held a 32.4 per cent share in 2025, with German OEMs close behind at 31.9 per cent, a significant improvement for the German carmakers.
Their share lagged at around 20 per cent during previous years while their Chinese peers sat above 40 per cent, according to the report.
German brands Volkswagen, BMW and Mercedes were also showing the highest innovation strength among the pre-series developments that will hit the market in 2026, the report stated. Stefan Bratzel, director of the centre, nevertheless cautioned that compared to costs, the technology gap was wider and would be a lot more difficult for European OEMs to close.
"Competitiveness encompasses more than just costs," he said. "It also depends on whether European manufacturers can deliver on software, user experience and brand appeal within both the Chinese and global markets by that time."
European brands have also been working on software, but through partnerships. Mercedes and BMW both chose to team up with Chinese self-driving firm Momenta to develop their assisted driving function in China.
Mercedes decided to collaborate with ByteDance to integrate the latter's AI assistant Doubao in its cars for the Chinese market.
Both German groups have ceased or paused work on their own Level 3 autonomous driving software - a level indicating "conditional automation", where some independent decision-making is possible but human override is required - saying the system was costly and limited in applications.
Unlike China or the US, Europe has few home-grown autonomous driving software companies.
Hendrikse agreed that catching up technologically was tougher for European OEMs, given how quickly China's industry and supply chain moved.
Source: Qatar Tribune
