Manufactured crisis

In Brussels and across much of Europe, a dominant narrative has taken hold: that the continent’s automotive sector is in a deep crisis and requires state support to transition to clean mobility. Job losses loom, factories face closure, and Chinese competition threatens European dominance. Initiatives such as the Antwerp Declaration, the Letta and Draghi reports, and the Clean Industrial Deal underscore the pressing need to bolster Europe’s industrial base, particularly its automotive sector.

In March 2025, the European Union (EU) industry chief, Stéphane Séjourné, warned that European carmakers are in “mortal danger” as the EU launched an Industrial Action Plan to enhance the competitiveness of the European automotive sector. The plan includes direct public finance for battery producers, most notably through the €1.8 billion Battery Booster and an additional €1 billion allocated for digitalisation and battery research and development under Horizon Europe. Such financial support could be combined with state aid, and for this, the European Commission has just adopted(opens in new window) a new Clean Industrial State Aid Framework (CISAF). The CISAF simplifies EU rules on state aid for developing clean tech manufacturing, including electric vehicle batteries, battery components, and the production of the necessary critical raw materials. In this framework, Member States are strongly encouraged to attach conditions to State aid to support broader social and environmental policy goals. Member States are also encouraged to develop such conditionalities in collaboration with social partners.

However, if we look beyond the headlines, a different story emerges – one of a lucrative car industry using the language of crisis to request financial support, while for decades it has actively blocked the desperately needed shift towards a low-carbon transport system. 

Our analysis shows that European carmakers continue to maintain their global market share and profits; however, vested interests in combustion engines have long hindered bold electrification efforts. The real crisis lies not in the industry’s finances, but in the unwillingness of both automakers and EU regulators to pursue a genuine transformation that markedly reduces the greenhouse gas emissions and resource use at the core of the multiple crises the world faces.

For two decades, Europe’s auto giants have actively steered the so-called “green” agenda to serve their interests. Through well-funded lobbying and close ties to policymakers, they have weakened environmental regulations to protect their business models and delayed climate action, while presenting themselves as champions of “green” innovation.

Bowing to pressure from the auto industry, the European Commission has recently weakened(opens in new window) CO₂ emissions rules. Instead of enforcing strict annual targets, the new policy allows manufacturers to average their emissions over the 2025–2027 period, effectively reducing accountability and giving carmakers more room to delay meaningful climate action. While the European Commission maintains its commitment to phasing out new petrol and diesel cars by 2035, industry groups and aligned politicians continue to question the deadline. 

The economic logic underpinning EU policy is clear: shield incumbents through subsidies, transitional buffers, tariffs, and flexible regulation. But this approach risks prolonging Europe’s dependence on fossil fuel infrastructure and undermining the EU’s Green Deal targets. Current regulatory leniency sets a dangerous precedent for potential policy backtracking.

This is not a minor policy detour. It represents yet another missed opportunity to accelerate the availability of affordable, low-emission, and resource-efficient modes of mobility. It could stall the continent’s climate goals.

On the whole, the EU’s automotive industrial policy shows a deep-seated structural contradiction: a pledge to green ideals alongside a systemic bias towards safeguarding heavily polluting traditional industries. 

An industry built on car dependency that impedes climate action should not receive state aid. Rather, state aid should come with strict social and environmental conditions and be redirected to support a new transport paradigm based on shared, public, and active mobility. 

In this paper, we examine the global financial context of the car industry to understand how Europe’s carmakers have gained influence and why EU institutions accommodate them despite rising environmental costs. We show how carmakers have actively undermined Europe’s climate goals by selling larger vehicles, neglecting toxic emissions, and deceiving consumers and regulators alike. We conclude by recommending state support for alternative forms of mobility and the inclusion of social and environmental conditions in state aid regulations. 

European car makers are the most profitable globally

To assess Europe’s position in the global marketplace, we analysed data from the London Stock Exchange Group database for the period 2006 – 2023, covering 35 car manufacturers headquartered in China, the EU, Japan, Korea, and the United States. 1 This includes firms that produce only electric vehicles (EVs) as well as those that manufacture a mix of conventional, hybrid, and electric models. The appendix contains the methodology and lists of manufacturers.

Market shares and profitability 

We begin by examining the evolution of market shares by region as a percentage of total global market shares from 2006 to 2023. European manufacturers – including Volkswagen, Stellantis, Renault, Mercedes-Benz, and BMW – maintained a relatively stable average 38 per cent global market share during this period. In contrast, Japan and Korea saw their joint share decrease from 52 per cent to 33 per cent. Tesla’s growth contributed to an increase in the US share from 15.6 per cent to 16.8 per cent.

China’s market share rose from 1 per cent in 2006 to 13.6 per cent in 2023, with its pure EV manufacturers accounting for nearly 6 per cent of global sales. 

Although the share of global sales has remained stable, European firms have acquired an increasing portion of global gross profits, rising from 27.9 per cent (€10.9 billion) in 2006 to 40.6 per cent (€98.1 billion) in 2023. The US has remained relatively stable in terms of global gross profits, while China has increased its share from 0.9 per cent to 10.3 per cent. 

EU carmakers’ increasing share of profits while maintaining a stable share of sales is consistent with the remarkable growth in profitability of EU firms in the automotive sector compared to those from other regions. EU car manufacturers enhanced their profitability from 3.7 per cent in 2006 to 10 per cent in 2023: for every euro of revenue in 2023, they retained 10 cents in profit after covering all expenses. 

“The profitability growth of EU carmakers reflects two distinct phases,” according to Tommaso Pardi, director of GERPISA(opens in new window) , the international automobile industry research network. “Before 2020, German premium brands profited from strong exports to China and the US, while many other European manufacturers like Fiat, Renault, PSA, and Opel were struggling. Following the pandemic, supply shortages enabled carmakers to restrict volumes, raise prices, and push more aggressively into the premium segment. This strategy delivered record profits but also fuelled today’s affordability crisis in the EV transition, with very few smaller A- and B-segment electric models available.” 2

In contrast, Chinese manufacturers maintained relatively low profitability, with a margin of 2.2 per cent in 2023, highlighting the fierce competition in China’s domestic market. US producers rebounded strongly after the 2008 financial crisis, when they needed rescue by the Obama administration.

This data reveals that as EU carmakers maintained their strong global market share, they also achieved the highest profit margins worldwide. Unlike Chinese carmakers, which boosted their market share by sacrificing profits, EU carmakers successfully accomplished both, demonstrating the strength of their brand and market influence. 

Investment practices and financial reserves

Despite European car manufacturers securing a larger share of global profits and achieving the highest profit margins of any region globally in 2023, they have invested less in their own transformation. 

Although EU car producers’ annual net profits rose from €10.5 billion in 2006 to €71.8 billion in 2023 – a 584 per cent increase – capital expenditure ( capex ) grew only from €45 billion to €53 billion, just an 18 per cent increase.

The investment rate – capex as a percentage of the stock of physical capital (property, plant, and equipment, or PPE) – for European firms decreased from 28 per cent in 2006 to a mere 16 per cent in 2023, the lowest among the regions. In contrast, Chinese carmakers significantly raised their investment rate, peaking at 38 per cent in 2012 before easing to 26 per cent in 2023.

This highlights a striking imbalance. While European car manufacturers garnered nearly half of global gross profits between 2006 and 2023, they reinvested only about one-third of those earnings, suggesting a reluctance to allocate their financial strength into innovation, particularly toward a zero-emissions future.

As a result, European carmakers now hold the largest financial reserves globally, rising from €41.1 billion in 2006 to €209.3 billion in 2023 – an amount equivalent to more than half the EU’s annual budget of €390 billion for that same year.

These substantial financial reserves position European manufacturers strongly in comparison to their global counterparts. With such considerable resources at their disposal, important questions arise regarding the role of the European Commission’s initiatives in supporting an already profitable car industry. Moreover, the industry itself has delayed climate action and investment in its own transformation.  

How carmakers undermined Europe’s climate goals: larger vehicles, toxic diesel emissions, and deceit

The data make one thing clear: Europe’s car industry is not in mortal danger – it is entrenched, powerful, and profitable, with the resources to lead the decarbonisation process but little incentive to do so. Instead, legacy automakers have used their political influence to defend a combustion-engine-based model and postpone the transition. A striking example is Volkswagen, which spent nearly €3 million on EU lobbying(opens in new window) in 2024, held 128 high-level meetings with EU officials, and employed 16 lobbyists – four of whom had direct access to the European Parliament.

Larger cars

The European Commission’s introduction of binding CO₂ targets in 2009 – following the failure of earlier voluntary limits – marked a key shift in climate policy for the automotive sector. The targets, set at 130 grammes per kilometre (g/km) for 2015 and tightened to 95 g/km by 2021, aimed to curb transport emissions, then one of the EU’s fastest-growing sources of greenhouse gases. However, to protect industrial competitiveness, the Commission adopted a weight-based formula that adjusted each manufacturer’s CO₂ target according to the average mass of their new vehicles. 

This created a perverse incentive to move “upmarket”, prompting both mainstream and premium manufacturers to produce heavier vehicles with easier-to-meet CO₂ targets. SUVs (sport utility vehicles) and other large models became especially attractive, as they offered higher profit margins – consumers paid more for added features, while production costs remained relatively stable. The result: larger, more powerful, more profitable, and more polluting vehicles.

The weight-based formula not only undercut emissions reductions but also reshaped the automotive market. By discouraging investment in lighter, more efficient, and affordable models, it accelerated an industry-wide shift towards larger, more profitable vehicles. Mass-market brands like Fiat and Renault lost ground to premium manufacturers such as BMW, Audi, and Tesla. By 2023, SUVs accounted for 50.3 per cent of European car sales – up from just 10 per cent in 2010(opens in new window) – cementing the upmarket drift at the core of Europe’s transport climate policy failure. 3

Promoting diesel

At the same time, the industry pursued a second strategy: promoting diesel. Diesel engines, although heavier and more expensive than their petrol counterparts, offered greater fuel efficiency and lower CO₂ emissions per kilometre. By the mid-2010s, diesel vehicles made up more than half of all new car sales in many EU countries. However, diesel poses a significant issue: toxic nitrogen oxide (NOx) emissions linked(opens in new window) to asthma, lung cancer, and other respiratory diseases, particularly in urban areas. 

These health and environmental harms were ignored until 2015, when the Dieselgate scandal revealed that Volkswagen had used illegal software to deceive emissions tests (with real-world emissions up to 16 times higher than lab results). The scandal soon engulfed(opens in new window) other manufacturers, including Audi, BMW, Fiat Chrysler, and Mercedes-Benz, which employed similar manipulative and fraudulent tactics. The scandal demonstrated that the diesel strategy was not merely flawed but based on deception amounting to fraud(opens in new window) . 

The consequences

The industry’s twin strategies – building larger vehicles and relying on diesel – produced a troubling paradox. As the Draghi report(opens in new window) highlights, Europe has failed to align its industrial and climate goals. Despite cleaner engines, CO₂ emissions rose by over 20 per cent between 1990 and 2019, driven by a surge in vehicle numbers and a 60 per cent increase in average vehicle weight and power (as well as cost). Transport emissions have seen little decline over the past two decades and remain a major climate challenge, accounting for 24 per cent of total EU emissions, with road transport responsible for nearly two-thirds of this share.

Only recently has the EU begun to partially reverse course. From 2025, adjustments to the weight-based formula(opens in new window) will reduce, but not eliminate, the preferential treatment of heavier vehicles. As heavier EVs enter the market, the formula will encourage the production of lighter, cleaner, and more affordable models, key to meeting climate goals and reducing social inequality. Yet European automakers, especially German premium brands, continue to lobby for further changes, casting uncertainty over future policy revisions.

Ironically, just as Europe’s incumbents doubled down on flawed strategies, China, for so long a laggard in traditional automotive technologies, seized the chance to leapfrog other regions’ internal combustion dominance. By embracing the EV sector, where legacy advantages matter less and innovation is more dynamic, China positioned itself to challenge the global status quo and redefine technological leadership.

Conclusion: subsidising entrenchment, evading transition

In light of the evidence, a critical re-examination of the EU’s approach to industrial policy, particularly its state aid to legacy automakers and consistent alignment with corporate interests, is long overdue. Far from being embattled or underfunded, Europe’s car industry is sitting on over €200 billion in financial reserves and has captured nearly half of global automotive profits since 2006. Yet, despite this wealth, European car firms invest proportionally less than their global counterparts. Rather than leading the transition, they use their influence to slow it down and continue profiting from the combustion engine. 

The consequences of this misalignment are tangible. By shielding incumbents from the pressure to transform, the EU squanders both time and public legitimacy. It delays the emergence of a genuinely post-carbon mobility system – one based not on green consumerism for the affluent but on accessible, low-emission transport for the many. 

This is the silent scandal of the EU’s automotive policy. At a time when profound decarbonisation urgently requires us to rethink how – and how much – we move, European institutions invest billions to uphold a mobility system centred on the private car. Replacing petrol with electric engines may reduce tailpipe emissions, but it does nothing to tackle the ecological, material, and human rights constraints of powered and privatised mobility itself. 

EVs, particularly at the scale and weight currently prevalent in European markets, carry their own extractive footprint. This arises from their reliance on traditional steel and aluminium, as well as large quantities of lithium, nickel, cobalt, copper, and rare earths, often procured through global supply chains characterised by dispossession, pollution, and labour abuse. 

What remains absent is any serious commitment to alternative(opens in new window) , low-resource-intensive forms of mobility. A just and sustainable transition cannot be built around the continued dominance of the private car. It requires investment in public transport, walking and cycling infrastructure, and shared mobility services. These options reduce emissions more effectively, utilise space and materials more efficiently, and promote social inclusion. 

To move beyond supporting polluting industries, the EU must take decisive action to align its industrial and mobility policies with sustainability and social justice. 

All forms of public financial support, including the Clean Industrial State Aid Framework, must come with binding environmental and social conditions. Public money should drive real industrial transformation – cutting emissions, reducing resource use, and creating secure and decent jobs – not business-as-usual practices that delay the transition.

When evaluating State aid measures for the decarbonisation of the transport sector, the European Commission must break with policies that have long favoured larger, heavier, and more polluting cars. Public funds from Member States should be made conditional on supporting affordable, zero-emission mobility, promoting lighter and more resource-efficient vehicles, and, above all, prioritising alternatives that reduce car dependency, such as public transport, shared mobility, and active forms of mobility.

Without such conditions, the current strategy locks Europe into a car-dependent future, financed with public money and justified by green rhetoric. The EU’s failure lies not in under-supporting its car industry, but in offering that support unconditionally—while doing far too little to fund and develop a fairer mobility system that tackles both social and environmental concerns, from local air quality to global injustices such as climate change, inequality, and the disproportionate impacts of mining and resource overconsumption.