Electric car wave challenges Europe's auto capital

The rapid growth of electric vehicles, especially from China, has put Slovakia and the Czech Republic, the world's two largest car producers per capita, in a position to change.

Dubbed the “Detroit of Europe,” Slovakia and the Czech Republic are the world’s two largest car producers per capita. In this metropolitan area, the auto industry plays a pivotal role in the economy.

Car manufacturing is Slovakia's largest industry, accounting for 13% of GDP (Germany's is 5%), with major brands such as Volkswagen, Peugeot, Kia, Jaguar Land Rover having factories. By 2022, the country will produce more than one million cars, or an average of 184 cars per 1,000 inhabitants. More than 30% of Slovakia's annual exports come from cars and related engines and machinery.

In the Czech Republic, the automotive industry also accounts for about 10% of GDP, and a quarter of exports. It is home to factories for Skoda, TPCA and Hyundai.

Over the past two decades, thanks to the auto industry, the Czech Republic and Slovakia have grown at 2.4% and 3.5% respectively, above the EU average. But the electric vehicle wave is threatening the future of this auto capital. There are at least two main challenges facing the region. First is the wave of electric vehicles "Made in China".

Data from the Center for Strategic and International Studies (CSIS) in Washington (USA) shows that China's electric vehicle exports to Europe have increased steadily every year, from 621.5 million USD in 2019 to more than 15 billion USD in 2022. In the first 7 months of 2023 alone, it reached more than 13 billion USD.

CSIS said most electric vehicles imported from China arrive at ports in Belgium, the Netherlands or Slovenia, but are then sold in the UK, Germany or Scandinavia. Most Chinese electric vehicles enter Europe thanks to high demand and low import tariffs, while the US’s 27.5% tariff makes them difficult to penetrate.

According to research by the German insurance company Allianz, if Chinese cars enter Europe to reach 1.5 million by 2030, the economic loss for the European auto industry will be 24.2 billion euros. Economies that are heavily dependent on this industry such as Slovakia and the Czech Republic may suffer a greater impact, 0.3-0.4% of GDP.

“If we say that China is bad at producing combustion engine cars, this is no longer true for electric cars,” Patrik Križanský, director of the Slovak Electric Vehicle Association (SEVA), told EURACTIV Slovakia.

Allianz suggests that policymakers should pursue reciprocal trade cooperation with China. “Furthermore, allowing Chinese investment in auto assembly could create more value added,” the company recommends.

In a recent effort to protect the auto industry, the European Commission has opened an investigation into several Chinese electric vehicle manufacturers to see if they are benefiting from subsidies to sell at lower prices. France has published a list of electric vehicles eligible for subsidies, excluding most Chinese vehicles.

European manufacturers are accelerating the electrification drive, but this also poses challenges for the country’s auto industry. Several multinationals have announced major investments in Slovakia from 2022, including more than €1.2 billion from Volvo for its third factory in the country, which will produce electric cars. Porsche is also planning to spend €1 billion to produce battery modules for electric vehicles.

Zuzana Zavarská, an economist at the Vienna Institute for International Economic Studies (WIIW), confirmed that foreign companies are driving the transformation in Slovakia through large investments.

She believes that domestic companies are lagging behind in the transition, which requires the country to take a more assertive approach to industrial policy, Zuzana Zavarská commented in Emerging Europe .

Because most car engines produced in Slovakia are still conventional combustion engines. Electric engines require fewer parts and are simpler to manufacture. This means fewer workers are needed to maintain the same car output.

Workers work on a Volkswagen Porsche production line in Bratislava, Slovakia in July 2019. Photo: Reuters — Workers work on a Volkswagen Porsche production line in Bratislava, Slovakia in July 2019. Photo: *Reuters*

A total of 260,000 people work at four carmakers and 350 suppliers across Slovakia. In the Czech Republic, that number is almost double. In a worst-case scenario, up to 85,000 jobs, or 4.5% of the workforce, could be eliminated by switching to electric vehicles, according to research by Bratislava-based think tank Globsec.

“If we don’t manage this transition, we will have a problem with jobs,” Alexander Matusek, chairman of the Slovakian Automotive Industry Association (ZAP), told Bloomberg.

Another concern for the future of the Czech Republic and Slovakia is the risk of falling behind in attracting investment in electric vehicle battery plants. Hungary and Poland have nearly a dozen factories built or under construction. The problem, says Vazil Hudak, Slovakia’s former economy minister and vice chairman of Globsec, is that when automakers choose to expand, they may direct new production to areas near battery suppliers.

By mid-last year, according to Reuters , there were two projects related to electric vehicle batteries in the Czech Republic and Slovakia. Of these, Magna Energy Storage (MES) was operating a $64.5 million plant with an initial capacity of 200 MWh per year in the Horní Suchá region. The company hopes to increase that to 15 GWh in the future. Meanwhile, Slovakia only had a pilot production project with a capacity of 45 MWh by InoBat.

In 2022, Volkswagen was looking for a possible location to build a fourth electric car battery factory in Eastern Europe, with the group considering the Czech Republic, Hungary, Poland and Slovakia.

However, in November 2023, CEO Oliver Blume said Volkswagen had not yet decided on a location for the factory due to lower-than-expected demand for electric vehicles in Europe. The company has a subsidiary in the Czech Republic, Skoda.

After Oliver’s announcement, Czech officials began offering the site for Volkswagen’s battery plant to other investors, unable to wait any longer. The site had been planned by the government for a gigafactory that would allow them to control the electric vehicle supply chain.

Industry and Trade Minister Jozef Síkela said he was in talks with five potential investors to build the megafactory. He did not name them but said they could come from other continents.

Phien An ( summary )

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