The Scale of the Contraction
Between 2023 and 2026, European automotive manufacturing has undergone a contraction without precedent in the postwar era. Volkswagen announced multiple German plant closures. Stellantis cut production at facilities in Italy, France, and Germany. Ford’s European operations have shrunk to a fraction of their peak. The combined effect on employment in automotive manufacturing communities across Germany, France, Italy, and Spain has been severe.
Helen Thompson, a political economist who appeared on Breaking Battlegrounds Episode 227 in January 2025, analyzed the structural causes of this contraction at a moment when the headline numbers were becoming clear but the policy debate had not yet fully reckoned with them.
The EU Emissions Mandate Problem
The EU’s decision to mandate that all new passenger car sales be zero-emission by 2035 was made in a policy environment that assumed Chinese EV manufacturing would not become globally competitive before European manufacturers had completed their transition. That assumption was wrong.
Chinese EV manufacturers, BYD most prominently, have achieved cost structures that undercut European incumbent manufacturers by significant margins. A BYD Seal competes with a VW ID.4 at a price point that VW cannot match at current German labor and energy costs. The EU’s mandate created a forced march toward EVs at exactly the moment when the competitive landscape for EVs became most unfavorable for European producers.
The Energy Cost Factor
European industrial energy costs rose dramatically after 2022 following Russia’s invasion of Ukraine and the subsequent disruption of Russian natural gas supplies. German industrial electricity prices reached multiple times U.S. prices at their peak. Manufacturing EVs, which are more energy-intensive to produce than internal combustion engine vehicles due to battery manufacturing, became less cost-competitive in Europe precisely as European manufacturers were being required to accelerate their EV transition.
Thompson’s analysis on Breaking Battlegrounds identified this energy cost shock as the underappreciated factor in the automotive collapse: the emissions mandate would have been challenging under normal energy cost conditions, but it became catastrophic when combined with post-Ukraine energy pricing.
The Conservative Policy Lesson
The European automotive crisis is a case study in the consequences of regulatory mandates that ignore market realities and international competitive dynamics. The EU set a technology mandate, EVs only by 2035, without ensuring the industrial conditions (affordable energy, domestic battery supply chains, competitive manufacturing costs) necessary for the transition to succeed.
The lesson for U.S. energy and industrial policy is direct: technology mandates imposed on timelines that do not account for competitive and economic realities produce dislocation rather than transition. The alternative, market-based incentives that allow companies to find the most efficient path to cleaner production, is the approach that conservative energy policy has consistently advocated.
Frequently Asked Questions
Why is Europe's car industry in trouble?
The European automotive industry has faced a convergence of pressures: EU mandates requiring all new car sales to be zero-emission by 2035, Chinese EV manufacturers achieving cost structures European producers cannot match, and post-Ukraine energy cost shocks that raised manufacturing costs for the most energy-intensive vehicles.
What is BYD and why does it matter for European automakers?
BYD is a Chinese electric vehicle manufacturer that has achieved production costs significantly below European competitors. Its ability to offer competitive EVs at lower prices has captured market share in Europe at the moment European manufacturers are required to accelerate their own EV transition.
