Behind the difficult transformation of European and American automakers

In 2025, amid the global automotive industry's transformation wave, traditional European and American automakers collectively fell into a "turnaround predicament" : Audi put aside its goal of full electrification by 2033 and shifted to a three-track parallel development of fuel, hybrid, and pure electric vehicles. Mercedes-benz has extended the life cycle of its fuel vehicles and hybrid models and abandoned its aggressive electrification schedule. Ford publicly admitted that it lost $37,000 for each electric vehicle sold and had to rely on the profits from fuel vehicles for financial support. The European and American giants that once dominated the global automotive industry for a century are struggling in the electrification and intelligence revolution. The difficulty of their transformation is not only the pain of technological iteration, but also the inevitable result of the interweaving of multiple factors such as industrial inertia, policy wavering, market competition and cultural genes, reflecting the common predicament of traditional manufacturing in disruptive changes.

Industrial inertia and supply chain burdens have formed the first chasm for the transformation of European and American automakers. The manufacturing system and supply chain network accumulated by the European automotive industry over a century, which was once its core capital to dominate the world, have now become a "heavy shackle" for its transformation towards electrification. The production bases of car manufacturers such as Volkswagen and BMW are spread all over the world. The fixed asset investment in traditional fuel vehicle production lines amounts to hundreds of billions of euros. If they are to fully shift to electrification, not only will a huge amount of funds be needed to rebuild the production lines, but they will also face the thorny problems of idle existing equipment and the transformation of skilled workers. More crucially, the vertical division of labor system that European and American automakers have long relied on is difficult to adapt to the manufacturing logic of electric vehicles. Suppliers of core components such as engines and gearboxes in the era of fuel vehicles lack technological accumulation in core areas of new energy such as batteries, motors, and electronic control systems. Moreover, rebuilding a localized battery supply chain faces the challenges of long cycles and high costs. Although domestic battery enterprises such as Northvolt in Sweden have received government support, their production capacity has been ramp-up slowly and they still cannot meet the demands of automakers in the short term. This has forced European and American automakers to rely on imported batteries, further pushing up manufacturing costs. This industrial inertia of "the more advanced in the past, the more passive now" makes European and American automakers, in the face of China's lightweight new energy vehicle manufacturers, seem like an "elephant turning around", finding it difficult to quickly adjust their posture.

Policy wavering and market imbalance have exacerbated the uncertainty of the transformation process. The policy support for electrification from European and American governments lacks consistency, and the frequent "changes in the pancake" have left automakers at a loss. Three years ago, the Conservative government in the UK cancelled the subsidies for purchasing electric vehicles. Now, the Labour government has promised to allocate 650 million pounds to restore the subsidies. Germany once vigorously promoted subsidies for purchasing electric vehicles, but suddenly cancelled them due to financial pressure, which directly led to a 34% drop in electric vehicle sales in Germany in 2024. The EU has repeatedly adjusted its emission reduction policies. Not only has it postponed the "2035 fuel ban", but it has also granted exemptions to synthetic fuel vehicles. The relaxation of policies has led automakers to doubt their long-term strategies.

The profit predicament and strategic misjudgment have made the path of transformation even more difficult. The transformation to electrification requires continuous and huge investment, but the electric vehicle businesses of European and American automakers are generally Mired in losses. Audi's 2024 financial report shows that its electric vehicle business suffered a loss of 2.1 billion euros, while fuel vehicles contributed 65% of the profits. The total profit for the year plummeted by 38%. Apart from Tesla, the electrification projects of traditional American automakers have been repeatedly postponed, and their profit prospects are dim. This predicament of "insufficient self-sustaining capacity" forces automakers to rely on the profits from fuel vehicles to subsidize the research and development of electric vehicles, creating a dilemma where "the deeper the transformation, the more severe the losses". What is even more alarming is that some European and American automakers have made obvious misjudgments in their strategic choices: they neglected the research and development of core technologies such as batteries and electronic control systems in the early stage and overly relied on external suppliers. It has been slow to react in the intelligent race and has been left behind by Chinese automakers and Tesla in the fields of intelligent cockpits and autonomous driving.

From the perspective of the global automotive industry development trend, the waves of electrification and intelligence are irreversible. If European and American automakers want to maintain their market positions, they must find a balance among multiple contradictions: they need to break the industrial inertia and accelerate the reconstruction of the supply chain; It is also necessary to promote policy stability and improve infrastructure support. It is necessary to solve the problem of profitability while accurately identifying the strategic positioning. It is necessary to break through cultural constraints while also activating innovative vitality. This transformation is not merely an upgrade of technology and products, but also a comprehensive reconstruction of the industrial ecosystem, business logic and institutional environment. For European and American automakers, there is no shortcut to transformation. Only by embracing change with a more open mind and investing in innovation with a firmer determination can they gain a firm foothold in the new pattern of the global automotive industry.