Allianz, one of the world’s leading insurance companies, has released a new report analyzing the state of the automotive industry. According to the report, the sector, which grew by approximately 10% in 2023, saw only a modest 1.7% increase in 2024. The findings suggest that for Europe to reclaim its dominance in the industry, it must streamline its product range while increasing investments in infrastructure and innovation.
The Allianz report highlights that 2024 was a year of reckoning for the global automotive market, requiring strategic prioritization in 2025. Despite significant growth in 2023, the sector faced subdued demand in 2024, compounded by tighter credit conditions and higher financing costs. Even though automakers introduced hundreds of new models between 2023 and 2024, some failed to fully meet consumer expectations, further dampening market performance.
The report predicts that in 2025, the global automotive market will grow by approximately 2%, led by China (4% growth) and the U.S. (2.5% growth). However, due to trade tariffs and other regulatory challenges, Europe is expected to lag behind, with a projected growth rate of 1.5%, particularly impacting Germany’s automotive sector.
China continues to lead the transition to electric vehicles (EVs), while Europe was the only major market to experience a decline in EV sales in 2024. Allianz warns that the downward trend in EV adoption could extend to the U.S. under its new administration in 2025. The only bright spot in the European market was the hybrid vehicle segment, which saw over 20% growth in 2024. However, this trend benefited Asian automakers more than European brands.
With stricter carbon regulations on the horizon, automakers will be forced to reduce their carbon footprint. As a result, Europe must ensure stable growth in the EV segment in 2025 to remain competitive.
Allianz identifies three structural issues facing the European automotive industry. The first is the need for greater innovation. European automakers have been slow to transition to electrification, prioritizing their traditional advantages in internal combustion vehicles rather than embracing new digital and electric technologies. Over the past decade, European manufacturers have spent half as much on capital expenditures as their Chinese (BYD and Geely) and American (Tesla) counterparts, with investment levels in Germany hovering around 6% of revenues. Consequently, European vehicles remain expensive and lag behind in innovation. Even if trade tariffs are reduced, European sedans and SUVs are still 15-30% more costly than their Chinese competitors.
The second challenge is the rising trust in Chinese-made vehicles. China currently dominates battery production, supplying nearly two-thirds of the global market. Chinese automakers are also increasing their market share in Europe, offering affordable, high-quality EVs with cutting-edge technology. In 2024, their market share in Europe reached approximately 7-8%. Allianz suggests that Europe must implement policies that support domestic manufacturers without further eroding their market presence in China, where German automakers’ share has already declined from 25% in 2019 to 18% in 2024.
The third issue is the misalignment between strategic goals and policy execution in Europe. While EV market growth has slowed, the European Union is pushing stricter CO2 regulations, with potential fines exceeding €10 billion for non-compliance. Additionally, the region must address its ongoing energy crisis. With gasoline priced at €1.5 per liter and electricity costs exceeding €0.37 per kWh, the economic advantages of EV ownership must be reassessed and supported through regulatory incentives.
The report outlines a 10-step plan to restore Europe’s competitiveness. The key recommendations include adopting a three-pronged sectoral policy similar to China’s, combining consumer incentives, financial relief for manufacturers, and increased R&D funding. Europe should also take inspiration from Norway, which successfully balanced demand-side incentives with rapid EV infrastructure expansion. Another critical approach is to focus on a limited product range and technological advancements, much like Tesla, which leveraged a small lineup to build a trillion-dollar company in just two decades.
Allianz offers strategic advice for European automotive leaders, emphasizing the need to consolidate product offerings. The report suggests reducing product lines to five or six models, ensuring that at least half of them are available in both hybrid and electric versions. It also calls for targeted investments in customized charging solutions. Additionally, automakers should allocate at least 10% of their budgets to technology, R&D, and customer services.
To regain leadership, European manufacturers must also explore emerging markets such as India, Vietnam, Indonesia, and South America—regions with low vehicle ownership rates (5-20%) and limited international competition. Moreover, they should focus on battery technology, autonomous driving, AI-based software, and sustainable recycling initiatives.
With the right strategy and investments, Europe has the potential to reclaim its leadership in the global automotive industry, but time is of the essence.
