European Automakers Scramble to Catch Up

For decades, European brands like Volkswagen, BMW, and Mercedes-Benz dictated the terms of the global auto industry. Today, those same iconic companies are fighting to stay relevant. Facing fierce competition from Tesla and a wave of affordable, high-tech Chinese electric vehicles, Europe’s automotive giants are undergoing desperate and expensive reinventions to secure their survival.

The Shift in Global Power

The global car market has changed faster than legacy automakers anticipated. The threat is no longer just Tesla. Chinese manufacturers, led by BYD, NIO, and XPeng, have mastered battery technology and software integration. They are producing electric vehicles at a fraction of the cost of their European counterparts.

In late 2023, BYD officially dethroned Volkswagen as the best-selling car brand in China. This was a massive blow. China has been Volkswagen’s largest and most profitable market for years. European brands are suddenly realizing that their century of expertise in building internal combustion engines does not translate to dominance in the electric era.

To survive, these legacy brands are cutting costs, rewriting their technology strategies, and begging regulators for help.

Volkswagen Faces Historic Restructuring

Volkswagen is currently experiencing one of the most turbulent periods in its 87-year history. The company is grappling with high manufacturing costs, sluggish EV sales in Europe, and massive software failures.

Factory Closures and Job Cuts

For the first time since its founding, Volkswagen is considering closing manufacturing plants in Germany. The automaker recently scrapped a job security agreement that had protected German workers from forced layoffs since 1994. Volkswagen CEO Oliver Blume noted that the European car market is shrinking and the company simply has excess factory capacity. The brand is targeting 10 billion euros in cost savings by 2026 just to remain competitive.

The Software Crisis and the Rivian Lifeline

Volkswagen’s biggest hurdle has been software. The company created an in-house software division called CARIAD to build the brains for its next generation of cars. CARIAD was plagued by bugs, budget overruns, and severe delays. These software failures pushed back the release of highly anticipated vehicles like the electric Porsche Macan and the Audi Q6 e-tron by nearly two years.

To fix this mess, Volkswagen made a stunning move in June 2024. The company announced it would invest up to $5 billion in the American EV startup Rivian. The goal is to form a joint venture to share electrical architecture and software. Volkswagen is essentially admitting it cannot build the necessary software alone and is buying Rivian’s expertise to get its future vehicles back on track.

BMW Bets Everything on the "Neue Klasse"

BMW is taking a different approach to catch up. While the company has seen decent sales numbers with its current lineup of electric vehicles like the i4 and iX, these cars are largely built on modified platforms originally designed for gas-powered engines.

To truly compete with Tesla and Chinese rivals, BMW is preparing to launch a completely new, electric-first platform called the “Neue Klasse” (New Class).

A Technological Leap Forward

Starting in 2025, the Neue Klasse platform will debut on a vehicle roughly the size of the current BMW 3 Series. BMW promises this new architecture will bring massive improvements. The company is switching from flat battery cells to new cylindrical battery cells. These new cells are expected to improve energy density by 20 percent and increase overall driving range by 30 percent.

BMW is also completely overhauling its interior technology. The brand is introducing Panoramic Vision, a heads-up display that stretches across the entire width of the windshield. By focusing heavily on user interface and battery efficiency, BMW hopes the Neue Klasse will prove that European engineering can still outshine the competition.

Mercedes-Benz Taps the Brakes

While Volkswagen and BMW are rushing to modernize their EV lineups, Mercedes-Benz recently decided to slow down. In 2021, Mercedes made headlines by promising to go completely electric by 2030 in markets where conditions allowed.

Fast forward to early 2024, and the company has officially walked back that pledge. Mercedes now expects electric and plug-in hybrid vehicles to make up only 50 percent of its global sales by the second half of this decade.

The luxury automaker realized that consumer demand for highly expensive electric vehicles is cooling off. High interest rates and a lack of charging infrastructure are keeping buyers attached to gas-powered cars. To protect its profit margins, Mercedes will continue to update its internal combustion engine lineup well into the 2030s. The company is essentially buying itself more time to perfect its EV technology while relying on profitable gas cars to fund the transition.

The Tariff Shield

European automakers are not just relying on new products to survive. They are also leaning on the European Union for protection.

In July 2024, the European Commission introduced provisional tariffs on electric vehicles imported from China. Depending on the brand, these tariffs add an extra 17.4 percent to 38.1 percent import duty on top of the standard 10 percent car tax. The EU argues that Chinese automakers receive unfair government subsidies, allowing them to artificially lower prices and undercut European brands.

While these tariffs might slow down the influx of cheap Chinese cars like the MG4 or the BYD Dolphin, industry experts warn it is only a temporary fix. Chinese companies are already planning to build factories inside Europe (such as BYD’s upcoming plant in Hungary) to avoid the import taxes altogether. European automakers must fix their fundamental issues with software, battery costs, and factory efficiency if they want to survive the next decade.

Frequently Asked Questions

Why are European automakers struggling with software?

Building an electric vehicle is closer to building a giant smartphone than a traditional car. Legacy automakers spent decades perfecting mechanical engineering (engines and transmissions) but outsourced their software to third-party suppliers. Integrating dozens of different software systems into a single, seamless operating system has proven incredibly difficult for traditional brands.

What exactly is the Volkswagen and Rivian deal?

Volkswagen intends to invest up to $5 billion into Rivian between 2024 and 2026. This includes direct investments in Rivian stock and funding for a joint venture. The joint venture will allow Volkswagen to use Rivian’s highly praised, centralized software architecture in future VW, Audi, and Porsche vehicles.

Will Chinese electric vehicles be sold in the United States?

Currently, Chinese EVs are practically non-existent in the US market. The United States government recently imposed a 100 percent tariff on Chinese-made electric vehicles. This effectively prices them out of the market and protects American automakers from the same cheap competition currently flooding Europe.