Europe’s automotive industry, once dominant, is under pressure from all sides. Geopolitics, technological acceleration, and shifting investor expectations are reshaping the environment. While EU policymakers continue to treat electric vehicles as a green policy tool, markets are already moving on – to a future turned present where data, autonomy, and platform economics are what really matter. The question is not whether European automakers can survive. It is about whether Europe can maintain a meaningful influence in a sector increasingly defined by digital power dynamics.
In the United States, national security tariffs have sharply curtailed European car exports, while firms that manufacture in the US face possible third-country retaliation against American-based production. In Europe, automakers are contending with a surge in low-cost EVs, competition that has intensified as Chinese exports are deflected from markets such as Canada, which adopted the US’s 100% tariff, and from third-party suppliers redirecting vehicles originally intended for the US market. In China, a key battleground for global auto sales, European brands are losing market share to fierce domestic competitors, all while EU-China trade tensions add further risk. Financial markets have, of course, taken note: valuations of Europe’s major carmakers have declined, consequently increasing their weighted average cost of capital (WACC), and highlighting concerns that the region’s industry is falling behind in the shift to integrated electric autonomous platforms.
Complicating matters further is a disconnect between what markets reward and what EU policy supports. Investors assign high valuations to firms that integrate electric and autonomous vehicle technologies and show potential to monetize mobility services through data and AI platforms. In contrast, EU policy focuses narrowly on EV adoption for its environmental benefits, while regulatory barriers slow the rollout of autonomous vehicles – undermining the convergence markets increasingly value.
The market is no longer pricing these firms as carmakers but as technology platforms.
As a result, Europe has been a hesitant second mover in the EV/AV transition, lagging in both EV commercialization and the establishment of a secure, sovereign vehicle-to-everything (V2X) digital infrastructure that autonomous systems require. On the infrastructure front, Europe lacks domestic champions in the platform economy, suffers from fragmented telecoms networks, faces high electricity costs, and has made little progress on AV rollout, largely due to safety concerns. For example, rather than advancing its autonomous technology in Europe, Volkswagen has focused its advanced driver-assistance systems (ADAS) on the Chinese market and is trialing its robotaxi in California.
This disconnect is clearly reflected in market valuations. Tesla, for instance, has a massive market cap advantage over established firms like VW and Toyota despite the fact that it lags both in vehicle deliveries and reported an operating margin of only 7.2% in 2024, compared with Toyota’s 15.45%. Markets continue to attach economic value to electrification, but assign greater weight to the convergence of EV and AV technologies, where data and AI can be leveraged to turn mobility into a platform business. In this regard, the market is no longer pricing these firms as carmakers but as technology platforms.
The challenge facing Europe’s automotive industry is a telling case of how the transition to a data-driven economy has layered social, political, economic, structural, and geopolitical pressures onto what would otherwise have been a linear transition – from internal combustion engines (ICE) to EV technology – on a timeline that industry could have reasonably planned for.
Can Europe’s industry respond and, if so, what insights can be brought to bear from the general course of the ongoing digital transformation?
The future is not yet carved in stone. Both EVs and, even more so, AVs remain a work in progress. Margins across the sector remain low – BYD and Tesla included – and continued public support, along with access to patient capital, remains key for the commercial viability of the overall industry. This buys time for legacy European firms to reposition themselves – but the window is narrowing.
Another consequence of the digital transformation has been the shift in the geopolitical posture of the United States. Where it once embraced an international rules-based order, the US has moved towards a more protectionist, isolationist stance – from Wilsonian internationalism to a Jacksonian/Jeffersonian state. One aspect of this shift has been the internal societal transition from a politics that embraced progressive values, including the EV transition, to one that is doubling down on oil and gas, and the internal combustion engine.
The decoupling by the United States of its support for EVs and AVs, rollback of investment in charging and digital infrastructure, and its opting for a branch-plant industrial structure behind high national security tariffs has, in effect, ceded the contest to China. The Chinese model – defined by policy integration of EV and AV development, sovereign control over 5G and data flows behind the Great Firewall, and a domestic economy under tremendous internal competitive pressure – has placed the country in a commanding position to dominate global markets in this sector.
At the same time, this realignment offers an opening for Europe. Tesla’s brand has taken a hit on the continent, partly due to the political dalliance of its CEO, and its European sales have fallen accordingly. This, too, is a consequence of the digital transformation, which fueled the rise of the tech “broligarchs” whose personal influence increasingly shapes commercial outcomes.
The digital transformation has also altered public policy. The original justification for public support of the EV transition was largely environmental – reducing externalities, particularly emissions. Electrification of transport became an essential pillar of the EU’s climate strategy, driving EV adoption despite economic headwinds such as high electricity prices and uneven charging infrastructure across member states.
But the calculus, too, is shifting. To these established climate objectives must now be added a strategic priority: the development of a sovereign digital infrastructure. This has spurred new momentum toward a secure “Eurostack,” which promises an improved commercial environment for EV-AV integration in Europe.
In the meantime, European automakers do retain footholds in both the U.S. and Chinese markets, which offer platforms for advancing innovation in areas constrained by EU regulation. Volkswagen’s Los Angeles robotaxi program with Uber is one such example.
In sum, Europe’s automotive industry illustrates how the data-driven transformation of the economy is not just about technology. It is reshaping industrial strategy through overlapping social, strategic, and geopolitical transitions that the sector must now navigate. The shift underway is not merely from internal combustion to electric drive, but from products to platforms, refined by:
- Technological layering: EV as a platform for AV
- Social change: from car ownership to mobility services
- National security: as connected vehicles raise sovereignty concerns
- Geopolitical realignment: as great-power rivalry rewrites industrial relationships
Europe still has the option to reframe its EV agenda as industrial policy aimed at capturing value across the EV-AV-data stack – aligned not just with climate goals but with how the market now values the sector.
The data-and-predictive-AI era largely passed by Europe. The data-and-generative-AI era offers a second chance. EVs are the test case: can Europe contest the capture of digital rents, assert technological sovereignty, and regain geopolitical relevance, while still meeting its environmental goals?
© IE Insights.
