- A new model offensive, mastery of battery technology, and a focus on digitalization and efficiency will secure the future of leading European OEMs, according to the management consultancy Horváth
The European automotive industry stands at a crossroads, navigating through unprecedented technological transformations and market shifts driven by megatrends from e-mobility to autonomous driving. The future of cars is increasingly electric and interconnected, with vehicles becoming more defined by software and IT capabilities – highly automated and autonomous driving. Frank Göller, automotive expert and Partner at the international management consultancy Horváth, underscores the significance of this evolution – or, better said, the sheer necessity of this transition: “Automotive companies, the so-called OEMs, must now excel as both car manufacturers and IT and software companies, which requires considerable financial investments in high-tech and future-oriented vehicles – which also means: in infrastructure, tools, and specialized talents, especially in the field of AI. What we perceive in personal interviews with CxOs of the leading car manufacturers is that they are fully aware of the urgency and ready to get into the driver’s seat. The business strategies are set out long-term.”
Market Shake-Up: New players, new rules
The changes in the European automotive industry are profound, impacting the almost 12 million people - directly and indirectly - employed within it, who constitute nearly 8% of the EU's workforce, including linked sectors such as mechanical engineering and numerous service providers along the supply chain. Technologically advanced competitors from China, including BYD, Great Wall Motors, and Nio, are challenging European manufacturers, particularly in the e-mobility domain, by offering a range of affordable electric vehicles.
The confluence of transformation pressures, high material costs, emerging competitors, supply chain disruptions, elevated interest rates, and declining demand present considerable challenges for many companies. The European automotive industry is also contending with overcapacity, cost pressures, and regulatory hurdles. For instance, the Supply Chain Act and EUDR contribute to administrative expenses, while global supply chains remain fragile, as evidenced by the semiconductor crisis. Despite these obstacles, there is reason for optimism regarding the future of European automotive manufacturing. “The industry is on the cusp of model offensives, with new technological innovations poised to captivate global markets. Finally hitting the sweet spot of the range- and speed-spoiled European customers, making them globally competitive from a technological standpoint,' predicts Frank Göller. He also points out the increasing mastery of battery technology and the value chain by German companies. For example, Volkswagen's PowerCo is set to begin production at its new Giga Factory in 2025. “Battery technology is highly complex, and precisely for this reason, it offers great opportunities for ‘top players’ in the European manufacturing industry,” the expert is convinced.
Cost crunch: Efficiency is key
To sustain competitiveness, significant cost reductions are inevitable. Automotive manufacturers and suppliers are exploring all options to realize savings, from material costs to production and administration. According to the latest Horváth CxO Priorities study, six out of ten companies anticipate that meeting their savings targets will likely involve workforce reductions. However, the potential of digitalization must be harnessed to enhance efficiency and competitiveness.
Electrifying prospects for the future
While the future may not be entirely without challenges, there is a strong likelihood that significant manufacturing plants will continue to operate in Europe, including Germany. Eastern Europe is expected to emerge as a beneficiary, with many OEMs and suppliers expanding capacities in the region. The key to success will lie in captivating customers with electric vehicles with extended ranges, highly efficient hybrids, and combustion engines, coupled with state-of-the-art digital applications.
Frank Göller concludes: “The future of the automotive industry will be predominantly electric, but the transition will be gradual. Full control over vehicle software and digital applications will be crucial for success. And it is also the basis for the second step, as recently presented in Shanghai, autonomous driving – and urban air mobility, at ‘the end of the road’ or the momentary horizon.”
Here you can listen to a deep-dive interview with expert Frank Göller: https://hrvth.com/42Jrj8q.
